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Risk Shocks

Author Info

  • Lawrence Christiano
  • Roberto Motto
  • Massimo Rostagno

Abstract

We augment a standard monetary DSGE model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as 'risk'. We find that fluctuations in risk are the most important shock driving the business cycle.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18682.

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Date of creation: Jan 2013
Date of revision:
Handle: RePEc:nbr:nberwo:18682
Note: EFG
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Keywords:

Find related papers by JEL classification:

  • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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  1. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2010. "DSGE Models for Monetary Policy Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 7, pages 285-367 Elsevier.
  2. Michelle Alexopoulos, 2011. "Read All about It!! What Happens Following a Technology Shock?," American Economic Review, American Economic Association, vol. 101(4), pages 1144-79, June.
  3. Justiniano, Alejandro & Primiceri, Giorgio E & Tambalotti, Andrea, 2009. "Investment Shocks and the Relative Price of Investment," CEPR Discussion Papers 7598, C.E.P.R. Discussion Papers.
  4. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  5. Emmanuel De Veirman & Andrew Levin, 2014. "Cyclical changes in firm volatility," DNB Working Papers 408, Netherlands Central Bank, Research Department.
  6. Pablo N D’Erasmo & Hernan J Moscoso-Boedo, 2011. "Intangibles and Endogenous Firm Volatility over the Business Cycle," Virginia Economics Online Papers 400, University of Virginia, Department of Economics.
  7. Lawrence Christiano & Cosmin L. Ilut & Roberto Motto & Massimo Rostagno, 2010. "Monetary Policy and Stock Market Booms," NBER Working Papers 16402, National Bureau of Economic Research, Inc.
  8. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  9. Joseph S. Vavra, 2013. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," NBER Working Papers 19148, National Bureau of Economic Research, Inc.
  10. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle dating," Working Paper 0612, Federal Reserve Bank of Cleveland.
  11. Lawrence Christiano & Daisuke Ikeda, 2014. "Leverage Restrictions in a Business Cycle Model," Working Papers Central Bank of Chile 726, Central Bank of Chile.
  12. Fisher, Jonas D M, 1999. "Credit Market Imperfections and the Heterogeneous Response of Firms to Monetary Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 187-211, May.
  13. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  14. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," Working Papers 11-15, Center for Economic Studies, U.S. Census Bureau.
  15. Schmitt-Grohé, Stephanie & Uribe, Martín, 2009. "What’s News in Business Cycles," CEPR Discussion Papers 7201, C.E.P.R. Discussion Papers.
  16. Saki Bigio, 2012. "Financial Risk Capacity," 2012 Meeting Papers 97, Society for Economic Dynamics.
  17. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  18. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
  19. Christopher J. Erceg & Dale W. Henderson & Andrew T. Levin, 1999. "Optimal monetary policy with staggered wage and price contracts," International Finance Discussion Papers 640, Board of Governors of the Federal Reserve System (U.S.).
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