Volatility Risk Pass-Through

doi:10.1093/rfs/hhab096

Volatility Risk Pass-Through

2021-09-07

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Riccardo Colacito *

M

Mariano Massimiliano Croce

DOI：10.1093/rfs/hhab096

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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 larger and in the order of 90%. A novel channel of risk sharing of volatility risks can explain our empirical findings.

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C62

F31

G12

Volatility Risk Pass-Through

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