Volatility Risk Pass-Through

Riccardo Colacito, Mariano M Croce, Yang Liu and Ivan Shaliastovich

The Review of Financial Studies, 2022, vol. 35, issue 5, 2345-2385

Abstract: We develop a novel measure of volatility pass-through to assess international propagation of output volatility shocks to macroeconomic aggregates, equity prices, and currencies. An increase in country’s output volatility is associated with a decrease in its output, consumption, and net exports. The average consumption pass-through is 50% (a 1% increase in output volatility increases consumption volatility by 0.5%) and it increases to 70% for shocks originating in smaller countries. The equity volatility pass-through is larger and in the order of 90%. A novel channel of risk sharing of volatility risks can explain our empirical findings.

JEL-codes: C62 F31 G12 (search for similar items in EconPapers)
Date: 2022
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