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Risk Shocks

  • Lawrence Christiano
  • Roberto Motto
  • Massimo Rostagno

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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File URL: http://www.nber.org/papers/w18682.pdf
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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
Publication status: published as Christiano, Lawrence J., Roberto Motto, and Massimo Rostagno. 2014. "Risk Shocks." American Economic Review, 104(1): 27-65.
Handle: RePEc:nbr:nberwo:18682
Note: EFG
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  1. 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.
  2. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  3. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101121-1011, January.
  4. Cosmin L. Ilut & Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2010. "Monetary Policy and Stock Market Booms," Working Papers 10-69, Duke University, Department of Economics.
  5. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 281-313, October.
  6. 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.
  7. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
  8. Hernan Moscoso Boedo & Pablo D'Erasmo, 2013. "Intangibles and Endogenous Firm Volatility over the Business Cycle," 2013 Meeting Papers 97, Society for Economic Dynamics.
  9. Saki Bigio, 2014. "Financial Risk Capacity," Working Papers 2014-22, Peruvian Economic Association.
  10. 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.
  11. 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.
  12. Emmanuel De Veirman & Andrew Levin, 2014. "Cyclical changes in firm volatility," DNB Working Papers 408, Netherlands Central Bank, Research Department.
  13. Michelle Alexopoulos, 2010. "Read All About it!! What happens following a technology shock?," Working Papers tecipa-391, University of Toronto, Department of Economics.
  14. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle dating," Working Paper 0612, Federal Reserve Bank of Cleveland.
  15. Lawrence Christiano & Daisuke Ikeda, 2014. "Leverage Restrictions in a Business Cycle Model," Working Papers Central Bank of Chile 726, Central Bank of Chile.
  16. 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.
  17. Christiano, Lawrence & Rostagno, Massimo & Motto, Roberto, 2010. "Financial factors in economic fluctuations," Working Paper Series 1192, European Central Bank.
  18. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.
  19. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," Working Papers 11-15, Center for Economic Studies, U.S. Census Bureau.
  20. 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.
  21. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
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