Transitory Versus Permanent Shocks: Explaining Corporate Savings and Investment

2017 ◽  
Author(s):  
Sebastian Gryglewicz ◽  
Loriano Mancini ◽  
Erwan Morellec ◽  
Enrique J. Schroth ◽  
Philip Valta
Keyword(s):  
Permanent Shocks

scholarly journals VECM and Variance Decomposition: An Application to the Consumption-Wealth Ratio

2017 ◽  
Vol 9 (6) ◽  
pp. 188
Author(s):  
Francois De Paul Silatchom
Keyword(s):  
Variance Decomposition ◽  
Cointegration Analysis ◽  
Financial Assets ◽  
Decomposition Technique ◽  
Quarterly Data ◽  
Contemporaneous Correlation ◽  
Tangible Assets ◽  
Permanent Shocks ◽  
Transitory Variance

This study uses a variance decomposition technique, which doesn’t rely on the underlying economic theory, in order to implement a permanent-transitory variance decomposition of the consumption-wealth ratio. We break down the wealth variable into financial assets, tangible assets, and human assets. Using quarterly data over the last six decades, we rely on cointegration analysis as the framework for the study, in order to assess the long-term interrelation between consumption shocks, and those from each of the above mentioned wealth components. Our results indicate that wealth components tend to exhibit permanent shocks, while consumption shocks appear to be transitory. Moreover, the results also indicate a low contemporaneous correlation between shocks in consumption and the ones from financial assets, and also between shocks in consumption and the ones from tangible assets. In addition, the variance decomposition of consumption shocks seems to indicate that, over the time a significantly increasing proportion of consumption shocks is explained by financial assets.

Bond and option prices with permanent shocks

2019 ◽  
Vol 53 ◽  
pp. 272-290
Author(s):  
Haitham A. Al-Zoubi
Keyword(s):  
Option Prices ◽  
Permanent Shocks

Is it One Break or Ongoing Permanent Shocks That Explains U.S. Real GDP?

2013 ◽  
Author(s):  
Sui Luo ◽  
Richard Startz
Keyword(s):  
Real Gdp ◽  
Permanent Shocks

scholarly journals Temporary versus Permanent Shocks: Explaining Corporate Financial Policies

2010 ◽  
Vol 23 (7) ◽  
pp. 2591-2647 ◽  
Author(s):  
Alexander S. Gorbenko ◽  
Ilya A. Strebulaev
Keyword(s):  
Financial Policies ◽  
Permanent Shocks

A simple model of incomplete insurance the case of permanent shocks

1998 ◽  
Vol 22 (5) ◽  
pp. 763-777 ◽  
Author(s):  
Makoto Saito
Keyword(s):  
Simple Model ◽  
Permanent Shocks

A Bayesian Approach to Real Options: The Case of Distinguishing between Temporary and Permanent Shocks

2010 ◽  
Vol 65 (5) ◽  
pp. 1949-1986 ◽  
Author(s):  
STEVEN R. GRENADIER ◽  
ANDREY MALENKO
Keyword(s):  
Real Options ◽  
Bayesian Approach ◽  
Permanent Shocks

scholarly journals DO PERMANENT SHOCKS EXPLAIN INCOME LEVELS? A COMMON CYCLE-COMMON TREND ANALYSIS OF REGIONAL INCOME LEVELS FOR CHINA

2008 ◽  
Vol 13 (5) ◽  
pp. 656-662 ◽  
Author(s):  
Paresh Kumar Narayan ◽  
Seema Narayan
Keyword(s):  
Trend Analysis ◽  
Regional Income ◽  
Income Levels ◽  
Common Trend ◽  
Permanent Shocks

scholarly journals Measuring Long Run Risks for Brazil

2019 ◽  
Vol 39 (1) ◽  
Author(s):  
Caio Almeida ◽  
Diego Brandao
Keyword(s):  
Temporal Structure ◽  
Risk Premia ◽  
Risk Compensation ◽  
Market Returns ◽  
Power Utility ◽  
Recursive Preferences ◽  
Aggregate Consumption ◽  
Long Run ◽  
Permanent Shocks ◽  
Long Run Risks

We study the temporal structure of risk prices, risk exposures and expected market returns for Brazil assuming the economy follows a long run risks model. The model consists on an endowment economy where aggregate consumption and dividend growth contain predictable components, and a representative agent has Epstein-Zin recursive preferences with CES specification. We show that aggregate consumption in Brazil is sufficiently predictable to generate risk premia associated with Epstein-Zin preferences in excess of traditional compensations induced by power utility. Moreover, risk compensation is dominated by permanent shocks both in the short and long run, as Epstein-Zin preferences mitigate the price of temporary shocks' risk.

scholarly journals Covered Interest Parity Deviations Between India And The US

2011 ◽  
Vol 11 (1) ◽  
pp. 83 ◽  
Author(s):  
Vadhindran K. Rao
Keyword(s):  
Forecast Error ◽  
Error Variance ◽  
The United States ◽  
Country Risk ◽  
Forward Premium ◽  
Permanent Shocks ◽  
Forecast Error Variance ◽  
Covered Interest Parity ◽  
Interest Parity ◽  
The Impact

Prior studies have tested Covered Interest Parity (CIP) between India and the United States and found substantial deviations. The main objective of the current study is to econometrically model and explain deviations from CIP. Further, the study contributes to the literature by proposing an approach to testing CIP after allowing for country risk. A preliminary analysis suggests that there are two types of shocks that impact the CIP deviation, also referred to as the Covered Interest Differential (CID): permanent shocks and temporary shocks. The permanent shocks may be interpreted as reflecting a change in the country risk premium and the temporary shocks as reflecting transient effects and disequilibrium. The paper uses a bivariate Vector Autoregression (VAR) approach to model the joint dynamics of the CID and the forward premium, and applies the methodology of Blanchard and Quah (1989) to separate the impact of the two types of shocks. Impulse-Response analysis shows that a one standard deviation permanent shock has an immediate, substantial impact on the CID. However, forecast error variance decomposition reveals that less than 30% of the variability in the CID is caused by such permanent shocks. Further, permanent shocks account for less than 5% of the forecast error variance of the forward premium, which suggests that covered interest arbitrage activity has limited influence on the forward premium. Temporary shocks appear to be related to transient volatility in the forward premium, and such shocks initially affect both the forward premium and the CID to approximately the same extent. The manner in which the CID responds to a temporary shock suggests considerable impediments to arbitrage. However, the fact that the CID recovers at a slightly faster rate than the forward premium, especially in the initial periods, suggests that capital restrictions are not completely binding.

Temporary Vs Permanent Shocks: Explaining Corporate Financial Policies

2008 ◽  
Author(s):  
Alexander S. Gorbenko ◽  
Ilya A. Strebulaev
Keyword(s):  
Financial Policies ◽  
Permanent Shocks
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