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Volatility Risk Pass-Through

Listed author(s):
  • 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)

Registered author(s):

    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.

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    File URL: https://economicdynamics.org/meetpapers/2016/paper_135.pdf
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    Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 135.

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    Date of creation: 2016
    Handle: RePEc:red:sed016:135
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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