Risk Shocks

62 Pages Posted: 12 Jan 2013

See all articles by Lawrence J. Christiano

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Roberto Motto

European Central Bank (ECB)

Massimo Rostagno

European Central Bank (ECB)

Date Written: January 2013

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.

Suggested Citation

Christiano, Lawrence J. and Motto, Roberto and Rostagno, Massimo, Risk Shocks (January 2013). NBER Working Paper No. w18682, Available at SSRN: https://ssrn.com/abstract=2199739

Lawrence J. Christiano (Contact Author)

Northwestern University ( email )

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Roberto Motto

European Central Bank (ECB) ( email )

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Massimo Rostagno

European Central Bank (ECB) ( email )

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Germany
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