The Dynamic Impact of Macro Shocks on Insurance Premiums
Institute of International Finance
University of Missouri at Saint Louis - College of Business Administration
Ying Sophie Huang
June 4, 2009
Journal of Financial Services Research, Vol. 35, No. 3, 2009
We develop a model that investigates the relation between insurance premiums and macroeconomic variables, including oil price, interest rate, aggregate supply, and aggregate demand. We then use a multivariate structural vector error correction model to distinguish the effects arising from permanent and transitory components of insurance premiums. Changes in the transitory component indicate that our model captures key historical events. Although real shocks originating from oil price and aggregate supply explain the behavior of insurance premiums well, we show that financial market shocks are the main driving force behind the recent increasing volatility in insurance premiums in the U.S. market.
Keywords: Insurance premiums, Structural shocks, Vector error correction model
JEL Classification: C32, E44, G22Accepted Paper Series
Date posted: June 5, 2009
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