Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence

Nakamura, Emi; Sergeyev, Dmitriy; Steinsson, Jón

doi:10.1257/mac.20150250

Cited by 35 publications

(16 citation statements)

References 91 publications

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“…This literature includes Bansal and Shaliastovich (2013) ;Bansal, Dittmar, and Lundblad (2005) ;Hansen, Heaton, and Li (2008) ;Malloy, Moskowitz, and VissingJorgensen (2009) ;Croce, Lettau, and Ludvigson (2015); Chen (2010); Colacito and Croce (2011);and Nakamura, Sergeyev, and Steinsson (2015). Beeler and Campbell (2012) provide a critical empirical evaluation of the long-run-risks model.…”

Section: Relation To the Literaturementioning

confidence: 99%

Rare Events and Long-Run Risks

Barro

Jin

2016

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Section: Relation To the Literaturementioning

confidence: 99%

Rare Events and Long-Run Risks

Barro

Jin

2016

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“…shows that the U.S. has the largest share of population at 70%, followed by the U.K. and then Canada. When we calculate the equilibrium using these parameters, the allocations implied by the decentralized economy do not provide a steady-state equilibrium because one or more countries have unbounded utility 30 . Therefore, we instead characterize the range of Pareto efficient allocations.…”

Section: Differing Sizesmentioning

confidence: 99%

“…That is, we calculate the gains assuming each country individually receives all the surplus while leaving every other country indifferent. Thus, we can determine the upper bound in gains for country j by calculating the gains from receiving 30 For an equilibrium to exist we require that lifetime utility be bounded and rational along the equilibrium path for each country or that,…”

Section: Differing Sizesmentioning

confidence: 99%

Evaluating international consumption risk sharing gains: An asset return view

Lewis

Liu

2015

Journal of Monetary Economics

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International consumption risk sharing studies often generate counterfactual implications for asset return behavior with potentially misleading results. We address this contradiction using data moments of consumption and asset returns to fit a canonical international consumption risk sharing framework. Introducing persistent consumption risk, we find that its correlation across countries is more important for risk sharing than that of transitory risk. To identify these risk components, we jointly exploit the comovement of equity returns and consumption. This identification implies high correlations in persistent consumption risk, suggesting a strong degree of existing risk sharing despite low consumption correlations in the data. October, 2012Abstract Multi-country consumption risk sharing studies that match the equity premium typically find very large gains from risk-sharing. However, these studies usually generate counterfactual implications for the risk-free rate and asset return variability. In this paper, we modify a canonical risk-sharing model to generate asset return behavior closer to the data and then consider the effects on welfare gains. To better fit asset return behavior, we introduce persistent consumption risk, finding that the welfare gains depend critically on the international correlation in this persistent risk. We then provide a new identification for this risk by jointly exploiting the data correlation for equity returns and for consumption. This identification implies high correlation in persistent consumption risk, suggesting a strong degree of diversification despite low correlations in transitory risk. As such, our findings show that matching equity returns can imply lower international risk sharing gains than previously thought. * This paper was previously circulated under the title "International Consumption Risk Is Shared After All: An Asset Return View." We thank seminar participants at the Aarhus University Globalization Conference, Arizona State University, Cornell University, the Dallas Federal Reserve Bank, the Econometric Society, INSEAD, Keio University, the NBER Summer Institute, the Philadelphia Federal Reserve Bank, UNC-Chapel Hill, the University of Pennsylvania, and the University of Southern California and in particular Ravi Bansal, Max Croce, Bernard Dumas, Sebnem Kalemli-Ozcan, Dana Kiku, Andreas Stathopoulos, Linda Tesar and Amir Yaron for valuable comments. Of course, any errors are ours alone.

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“…From an empirical perspective, as noted in the introduction, realized equity price volatility and output growth share a large and negative contemporaneous correlation at the country level, for most countries in our sample. This correlation is a robust stylized fact of the data documented also by Baker and Bloom (2013), Carriere-Swallow and Cespedes (2013), and Nakamura et al (2017). From a theoretical perspective, as shown in the previous section, one can think of f t as a common world growth factor (e.g., technology), which affects all countries GDP growth rates and equity price volatilities contemporaneously, which we will call 'real' factor in the rest of the paper.…”

Section: A Static Multi-country Econometric Frameworkmentioning

confidence: 68%

Uncertainty and Economic Activity: A Multi-Country Perspective

2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Measures of economic uncertainty are countercyclical, but economic theory does not provide definite guidance on the direction of causation between uncertainty and the business cycle. This paper proposes a new multi-country approach to the analysis of the interaction between uncertainty and economic activity, without a priori restricting the direction of causality. We develop a multi-country version of the Lucas tree model with time-varying volatility and show that in addition to common technology shocks that affect output growth, higher-order moments of technology shocks are also required to explain the cross country variations of realized volatility. Using this theoretical insight, two common factors, a 'real' and a 'financial' one, are identified in the empirical analysis assuming different patterns of cross-country correlations of country-specific innovations to real GDP growth and realized stock market volatility. We then quantify the absolute and the relative importance of the common factor shocks as well as country-specific volatility and GDP growth shocks. The paper highlights three main empirical findings. First, it is shown that most of the unconditional correlation between volatility and growth can be accounted for by the real common factor, which is proportional to world growth in our empirical model and linked to the risk-free rate. Second, the share of volatility forecast error variance explained by the real common factor and by country-specific growth shocks amounts to less than 5 percent. Third, shocks to the common financial factor explain about 10 percent of the growth forecast error variance, but when such shocks occur, their negative impact on growth is large and persistent. In contrast, country-specific volatility shocks account for less than 1-2 percent of the growth forecast error variance. Terms of use: Documents inJEL-Codes: E440, F440, G150.

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Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence

Cited by 35 publications

References 91 publications

Rare Events and Long-Run Risks

Rare Events and Long-Run Risks

Evaluating international consumption risk sharing gains: An asset return view

Uncertainty and Economic Activity: A Multi-Country Perspective

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