Interpreting volatility shocks as preference shocks

Shaofeng Xu

Economics Letters, 2016, vol. 149, issue C, 135-140

Abstract: 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.

Keywords: Volatility shocks; Recursive preferences; Time-varying uncertainty (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Working Paper: Interpreting Volatility Shocks as Preference Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:149:y:2016:i:c:p:135-140

DOI: 10.1016/j.econlet.2016.07.028

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