American Economic Review: Vol. 104 No. 1 (January 2014)


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Risk Shocks

Article Citation

Christiano, Lawrence J., Roberto Motto, and Massimo Rostagno. 2014. "Risk Shocks." American Economic Review, 104(1): 27-65.

DOI: 10.1257/aer.104.1.27


We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as risk. We find that fluctuations in risk are the most important shock driving the business cycle.

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Online Appendix (502.15 KB) | Download Data Set (734.45 KB) | Author Disclosure Statement(s) (78.04 KB)


Christiano, Lawrence J. (Northwestern U)
Motto, Roberto (European Central Bank)
Rostagno, Massimo (European Central Bank)

JEL Classifications

D81: Criteria for Decision-Making under Risk and Uncertainty
D82: Asymmetric and Private Information; Mechanism Design
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
L26: Entrepreneurship

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