Interpreting Volatility Shocks as Preference Shocks

Shaofeng Xu

Staff Working Papers from Bank of Canada

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: Business fluctuations and cycles; Economic models (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (5)

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Journal Article: Interpreting volatility shocks as preference shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-45

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