Term Structure of Uncertainty in the Macroeconomy

58 Pages Posted: 9 Jun 2016

See all articles by Jaroslav Borovička

Jaroslav Borovička

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 7, 2016

Abstract

Dynamic economic models make predictions about impulse responses that characterize how macroeconomic processes respond to alternative shocks over different horizons. From the perspective of asset pricing, impulse responses quantify the exposure of macroeconomic processes and other cash flows to macroeconomic shocks. Financial markets provide compensations to investors who are exposed to these shocks. Adopting an asset pricing vantage point, we describe and apply methods for computing exposures to macroeconomic shocks and the implied compensations represented as elasticities over alternative payoff horizons. The outcome is a term structure of macroeconomic uncertainty.

Keywords: asset pricing, impulse response functions, shock elasticities, financing frictions, martingales

JEL Classification: C10, C32, C58, E44, G12, G32

Suggested Citation

Borovička, Jaroslav and Hansen, Lars Peter, Term Structure of Uncertainty in the Macroeconomy (June 7, 2016). Available at SSRN: https://ssrn.com/abstract=2791881 or http://dx.doi.org/10.2139/ssrn.2791881

Jaroslav Borovička (Contact Author)

New York University (NYU) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Lars Peter Hansen

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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