Volatility Risk Pass-Through
66 Pages Posted: 27 Nov 2015 Last revised: 18 Oct 2021
There are 4 versions of this paper
Volatility Risk Pass-Through
Volatility Risk Pass-Through
Volatility Risk Pass-Through
Volatility Risk Pass-Through
Date Written: February 1, 2015
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%. A novel channel of risk sharing of volatility
risks can explain our empirical findings.
Keywords: Volatility pass-through, foreign exchange disconnect, risk sharing
JEL Classification: C62; F31; G12
Suggested Citation: Suggested Citation