American Economic Review Vol. 104 No. 1 2014

Risk Shocks

Lawrence J. Christiano¹; Roberto Motto²; Massimo Rostagno²

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.

DOI

10.1257/aer.104.1.27

Volume

104

Issue

1

Pages

27-65

Language

en

Sources

bibtex:phds-export.bib openalex crossref

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