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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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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
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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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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. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2009. "Investment shocks and the relative price of investment," Staff Reports 411, Federal Reserve Bank of New York.
  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. Roberto Motto & Massimo Rostagno & Lawrence J. Christiano, 2010. "Financial Factors in Economic Fluctuations," 2010 Meeting Papers 141, Society for Economic Dynamics.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.
  10. Lawrence J. Christiano & Cosmin Ilut & Roberto Motto & Massimo Rostagno, 2010. "Monetary policy and stock market booms," FRB Atlanta CQER Working Paper 2010-08, Federal Reserve Bank of Atlanta.
  11. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle dating," Working Paper 0612, Federal Reserve Bank of Cleveland.
  12. Saki Bigio, 2014. "Financial Risk Capacity," Working Papers 2014-22, Peruvian Economic Association.
  13. Lawrence Christiano & Daisuke Ikeda, 2014. "Leverage Restrictions in a Business Cycle Model," Working Papers Central Bank of Chile 726, Central Bank of Chile.
  14. Hernan Moscoso Boedo & Pablo D'Erasmo, 2013. "Intangibles and Endogenous Firm Volatility over the Business Cycle," 2013 Meeting Papers 97, Society for Economic Dynamics.
  15. Emmanuel De Veirman & Andrew T. Levin, 2011. "Cyclical Changes in Firm Volatility," CAMA Working Papers 2011-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  16. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
  17. Jonas D.M. Fisher, 1998. "Credit market imperfections and the heterogeneous response of firms to monetary shocks," Working Paper Series, Macroeconomic Issues 96-23, Federal Reserve Bank of Chicago.
  18. Michelle Alexopoulos, 2010. "Read All About it!! What happens following a technology shock?," Working Papers tecipa-391, University of Toronto, Department of Economics.
  19. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
  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.
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