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Volatility Risk Pass-Through

Author

Listed:
  • Yang Liu

    (University of Pennsylvania)

  • Mariano Croce

    (University of North Carolina at Chapel H)

  • Ivan Shaliastovich

    (University of Pennsylvania)

  • Ric Colacito

    (University of North Carolina, Chapel Hil)

Abstract

We produce novel empirical evidence on the relevance of output volatility (vol) shocks for both currency and international quantity dynamics. Focusing on G-17 countries, we document that: (1) consumption and output vols are imperfectly correlated within countries; (2) across countries, consumption vol is more correlated than output vol; (3) the pass-through of relative output vol shocks onto relative consumption vol is significant, especially for small countries; and (4) consumption differentials vol and exchange rate vol are disconnected. We rationalize these findings in a frictionless model with multiple goods and recursive preferences featuring a novel and rich risk-sharing of vol shocks.

Suggested Citation

  • Yang Liu & Mariano Croce & Ivan Shaliastovich & Ric Colacito, 2016. "Volatility Risk Pass-Through," 2016 Meeting Papers 135, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:135
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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