Interpreting volatility shocks as preference shocks

Author: Bansal, Barro, Bloom, Chacko, Christiano, Cox, Duffie, Epaularda, Epstein, Fern치ndez-Villaverde, Fern치ndez-Villaverde, Gertler, Shaofeng Xu
Publisher: Elsevier BV

ABOUT BOOK

This paper examines the relationship between volatility shocks and preference shocks in an analytically tractable endogenous growth model with recursive preferences and stochastic volatility. I show that there exists an explicit mapping between volatility shocks and preference shocks, and a rise in volatility generates the same impulse responses of macroeconomic aggregates as a negative preference shock

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