Volatility Risk Pass-through

Riccardo Colacito, Mariano Croce, Yang Liu (yangliu5@hku.hk) and Ivan Shaliastovich

No 25276, NBER Working Papers from National Bureau of Economic Research, Inc

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 90%, whereas the link between volatility of currency and fundamentals is weak. A novel channel of risk sharing of volatility risks can explain our empirical findings.

JEL-codes: F3 G12 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-rmg
Note: AP EFG IFM
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Citations: View citations in EconPapers (15)

Published as Riccardo Colacito & Mariano M Croce & Yang Liu & Ivan Shaliastovich & Ralph Koijen, 2022. "Volatility Risk Pass-Through," The Review of Financial Studies, vol 35(5), pages 2345-2385.

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Related works:
Working Paper: Volatility Risk Pass-Through (2018)
Working Paper: Volatility Risk Pass-Through (2016)
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