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Title:The changing macroeconomic response to stock market volatility shocks PDF Logo
Authors:Beetsma, Roel
Giuliodori, Massimo
Issue Date:2011
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3652
Abstract:There is substantial consensus in the literature that positive uncertainty shocks predict a slowdown of economic activity. However, using U.S. data since 1950 we show that the macroeconomic response pattern to stock market volatility shocks has changed substantially over time. The negative response of GDP growth to such shocks has become smaller over time. Further, while during earlier parts of our sample both a slowdown in consumption and investment growth contribute to a reduction of GDP growth, during later parts, only the investment reaction contributes to the GDP slowdown. A variance decomposition for consumption growth shows that the contribution of stock market volatility becomes negligible as we go from earlier to later parts of the sample, while the corresponding decomposition for investment growth reveals an increase in the role of stock market volatility.
Subjects:Dow Jones index
stock market volatility shocks
economic growth
consumption
investment
sample splits
JEL:E20
E31
E40
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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