I propose a new method of constructing a macroeconomic shock based on its ability to explain the cross-section of asset returns. The only identifying assumption is that this λ-shock demands the highest risk price per unit of exposure, or equivalently, minimises the associated sum of squared...

Large risk shocks give rise to cost-push effects in the canonical New Keynesian model. At the same time, monetary policy becomes less effective. Therefore, stochastic volatility introduces occasional trade-offs for monetary policy between inflation and output gap stabilisation. The cost-push...

We identify a 'risk news' shock in a vector autoregression (VAR), modifying Barsky and Sims's procedure, while incorporating sign restrictions to simultaneously identify monetary policy, technology and demand shocks. The VAR-identifed risk news shock is estimated to account for around 2%-12% of...