Shock Elasticities and Impulse Responses

30 Pages Posted: 17 Apr 2014 Last revised: 25 Apr 2014

Jaroslav Borovička

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Jose A. Scheinkman

Columbia University; Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 25, 2014

Abstract

We construct shock elasticities that are pricing counterparts to impulse response functions. Recall that impulse response functions measure the importance of next-period shocks for future values of a time series. Shock elasticities measure the contributions to the price and to the expected future cash flow from changes in the exposure to a shock in the next period. They are elasticities because their measurements compute proportionate changes. We show a particularly close link between these objects in environments with Brownian information structures.

Keywords: shock elasticities, impulse response functions, risk pricing, Markov dynamics

JEL Classification: C52, C58, E44, G12

Suggested Citation

Borovička, Jaroslav and Hansen, Lars Peter and Scheinkman, Jose A., Shock Elasticities and Impulse Responses (April 25, 2014). Available at SSRN: https://ssrn.com/abstract=2425195 or http://dx.doi.org/10.2139/ssrn.2425195

Jaroslav Borovička

New York University (NYU) - Department of Economics ( email )

19 W 4th Street, 6th floor
New York, NY 10012
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lars Peter Hansen (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Department of Economics ( email )

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Chicago, IL 60637
United States
773-702-8170 (Phone)
773-702-8490 (Fax)

Jose A. Scheinkman

Columbia University ( email )

420 W. 118th Street
New York, NY 10027
United States

HOME PAGE: http://www.princeton.edu/~joses

Princeton University - Department of Economics ( email )

26 Prospect Avenue
Princeton, NJ 08544
United States
609-258-4020 (Phone)
609-258-6419 (Fax)

HOME PAGE: http://www.princeton.edu/~joses

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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