Shock Elasticities and Impulse Responses

Jaroslav Borovička, Lars Hansen and Jose Scheinkman

No 20104, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We construct shock elasticities that are pricing counterparts to impulse response functions. Recall that impulse response functions measure the importance of next-period shocks for future values of a time series. Shock elasticities measure the contributions to the price and to the expected future cash flow from changes in the exposure to a shock in the next period. They are elasticities because their measurements compute proportionate changes. We show a particularly close link between these objects in environments with Brownian information structures.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-mac
Note: AP
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Citations: View citations in EconPapers (28)

Published as Jaroslav Borovička & Lars Peter Hansen & José A. Scheinkman, 2014. "Shock elasticities and impulse responses," Mathematics and Financial Economics, vol 8(4), pages 333-354.

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