Does capital markets uncertainty act the business cycle? We nd that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out of-sample tests, we...

Does capital markets uncertainty affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out-of-sample...

Aim of this article is to judge the empirical performance of Arch as diffusion approximations to models of the short-term rate with stochastic volatility and as filters of the unobserved volatility. We show that the estimation of the continuous time scheme to which a discrete time Arch model...

The paper contributes to the stochastic volatility literature by developing simulation schemes for the conditional distributions of the price of long term bonds and their variability based on non-standard distributional assumptions and volatility concepts; itillustrates the potential value of...

We provide evidence that changes in the equity price and volatility of individual firms (measures that approximate the definition of 'granular shock' given in Gabaix, 2010) are key to improve the predictability of aggregate business cycle fluctuations in a number of countries. Specifically,...