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Risk Matters: A Comment

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  • Benjamin Born
  • Johannes Pfeifer

Abstract

Jesús Fernández-Villaverde, Pablo A. Guerrón-Quintana, Juan F. Rubio-Ramírez and Martín Uribe (2011) find that risk shocks are an important factor in explaining emerging market business cycles. We show that their model needs to be recalibrated because it underpredicts the targeted business cycle moments by a factor of three once a time aggregation error is corrected. Recalibrating the corrected model for the benchmark case of Argentina, the peak response of output after an interest rate risk shock increases by 63 percent and the contribution of interest rate risk shocks to business cycle volatility more than doubles. Hence, risk matters more in the recalibrated model. However, the recalibrated model does worse in capturing the business cycle properties of net exports once an additional error in the computation of net exports is corrected.

Suggested Citation

  • Benjamin Born & Johannes Pfeifer, 2014. "Risk Matters: A Comment," CESifo Working Paper Series 4793, CESifo.
    • Handle: RePEc:ces:ceswps:_4793
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    10. Michael Patrick Curran & Adnan Velic, 2017. "Interest Rate Volatility And Macroeconomic Dynamics: A Cross-Country Analysis," Villanova School of Business Department of Economics and Statistics Working Paper Series 35, Villanova School of Business Department of Economics and Statistics.
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    24. Michael Curran & Adnan Velic, 2020. "Interest rate volatility and macroeconomic dynamics: Heterogeneity matters," Review of International Economics, Wiley Blackwell, vol. 28(4), pages 957-975, September.

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    More about this item

    Keywords

    interest rate risk; stochastic volatility;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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