Risk Matters: The Real Effects of Volatility Shocks: Comment | Zendy

Benjamin Born | Zendy; Johannes Pfeifer | Zendy

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Risk Matters: The Real Effects of Volatility Shocks: Comment

Author(s) -

Benjamin Born,

Johannes Pfeifer

Publication year - 2014

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.104.12.4231

Subject(s) - business cycle , economics , volatility (finance) , econometrics , shock (circulatory) , monetary economics , macroeconomics , medicine

We show that the risk-shock business cycle model of Fernández-Villaverde et al. (2011) must be recalibrated because it underpredicts the targeted business cycle moments by a factor of three once a time aggregation error is corrected. Recalibrating the corrected model for the benchmark case of Argentina, the peak response and the contribution of interest rate risk shocks to business cycle volatility increase. However, the recalibrated model does worse in capturing the business cycle properties of net exports once an additional error in the computation of net exports is corrected. (JEL E13, E20, E32, E43, F32, F43, O11)

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