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Risk Shocks

Published:2014-01-01 Issue:1 Volume:104 Page:27-65
ISSN:0002-8282
Container-title:American Economic Review
language:en
Short-container-title:American Economic Review

Author:

Christiano Lawrence J.¹,Motto Roberto²,Rostagno Massimo²

Affiliation:

1. Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208 (e-mail: )

2. European Central Bank, Kaiserstrasse 29 60311 Frankfurt am Main, Germany (e-mail: )

Abstract

We augment a standard monetary dynamic general equilibrium 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. (JEL D81, D82, E32, E44, L26)

Publisher

American Economic Association

Subject

Economics and Econometrics

Link

https://pubs.aeaweb.org/doi/pdf/10.1257/aer.104.1.27

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