American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Risk Shocks
American Economic Review
(pp. 27–65)
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.Citation
Christiano, Lawrence J., Roberto Motto, and Massimo Rostagno. 2014. "Risk Shocks." American Economic Review 104 (1): 27–65. DOI: 10.1257/aer.104.1.27Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D82 Asymmetric and Private Information; Mechanism Design
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- L26 Entrepreneurship