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Financial Market Risk And Macroeconomic Stability Variables: Dynamic Interactions And Feedback Effects, Agnieszka M. Chomicz-Grabowska

Doctoral Dissertations (DBA)

This study investigates dynamic interactions and feedback effects between financial market risk proxied by VIX and key macroeconomic stability variables that include the rate of unemployment, headline inflation and market-based inflation expectations reflected by the breakeven inflation. I argue that market risk should play a stronger role in macroeconomic modeling and forecasting than it has been recognized thus far in the literature. I employ vector autoregression with impulse response functions, as well as two-state Markov switching tests to examine these interactions on the longest available US monthly data. The empirical tests show that the association between market risk and macroeconomic …