Accounting for Macrofinancial Fluctuations and Turbulence

Francis Vitek

No 2018/238, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the sources of macrofinancial fluctuations and turbulence within the framework of an approximate linear dynamic stochastic general equilibrium model of the world economy, augmented with structural shocks exhibiting potentially asymmetric generalized autoregressive conditional heteroskedasticity. Very strong evidence of asymmetric autoregressive conditional heteroskedasticity is found, providing a basis for jointly decomposing the levels and volatilities of key macrofinancial variables into time varying contributions from sets of shocks. Risk premia shocks are estimated to contribute disproportionately to cyclical output fluctuations and turbulence during swings in financial conditions, across the fifteen largest national economies in the world.

Keywords: WP; marginal revenue; shadow price; utility function; Macrofinancial analysis; World economy; Dynamic stochastic general equilibrium model; Autoregressive conditional heteroskedasticity; physical capital; transfer payment; constant returns to scale; price inflation; demand shock; stochastic process; production function; maximization problem; contagion economy; markup shock; good firm; Return on investment; Mortgages; Consumption; Loans; Imports; Global (search for similar items in EconPapers)
Pages: 74
Date: 2018-11-08
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