Risk Matters: A Comment

Benjamin Born and Johannes Pfeifer

No 39, Dynare Working Papers from CEPREMAP

Abstract: Jesús-Fernández-Villaverde, Pablo A. Guerrón-Quintana, Juan F. Rubio-Ramírez and Martín Uribe (2011) find that risk shocks are an important factor in explaining emerging market business cycles. We show that their model needs to 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 of output after an interest rate risk shock increases by 63 percent and the contribution of interest rate risk shocks to business cycle volatility more than doubles. Hence, risk matters more in the recalibrated model. 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.

Keywords: Interest Rate Risk; Stochastic Volatility (search for similar items in EconPapers)
JEL-codes: E32 E43 F32 F44 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014-05
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Working Paper: Risk Matters: A Comment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:dynare:039

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