The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper investigates the sources of macrofinancial fluctuations and turbulence within
the framework of an approximate linear dynamic stochastic general equilibrium model of
the world economy, augmented with structural shocks exhibiting potentially asymmetric
generalized autoregressive conditional heteroskedasticity. Very strong evidence of
asymmetric autoregressive conditional heteroskedasticity is found, providing a basis for
jointly decomposing the levels and volatilities of key macrofinancial variables into time
varying contributions from sets of shocks. Risk premia shocks are estimated to contribute
disproportionately to cyclical output fluctuations and turbulence during swings in
financial conditions, across the fifteen largest national economies in the world.