Working Paper: NBER ID: w22364
Authors: Jaroslav Borovika; Lars Peter Hansen
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: No keywords provided
JEL Codes: C10; C32; C58; E44; G12; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic shocks (F41) | asset pricing (G19) |
| macroeconomic shocks (F41) | expected returns (G17) |
| shock exposure (Y50) | risk compensation (G52) |
| shock-price elasticities (D11) | expected payoffs (J33) |
| asset pricing (G19) | risk prices (G13) |