Tobias Adrian, Ph.D., is Senior Vice President of the Federal Reserve Bank of New York und head of the Capital Markets Function of the Research and Statistics Group. He is an IMFS Research Fellow.
"Global Pricing of Risk, Monetary Policy, and Financial Stability"
When global financial institutions are marginal investors’ subject to risk management constraints, prices of risk vary as a function of market volatility. Consistent with that observation, Tobias Adrian and his co-authors present a dynamic asset pricing model that features a price of risk that forecasts global stock and bond returns as a nonlinear function of the volatility index VIX. Countries' exposure to the global pricing of risk is related to macroeconomic risks as measured by output and inflation volatility, the frequency and magnitude of financial crises, and stock market downside risk.
In their paper, the authors uncover a risk-return tradeoff: higher exposure to the global pricing of risk corresponds to both higher output volatility and higher output growth. The transmission of global risk appetite to macroeconomic outcomes is mitigated by the magnitude of stabilization in the Taylor rule and the degree of countercyclicality of fiscal policy. The impact of unconventional monetary policy and macroprudential policy also interacts with the impact of the global pricing of risk on domestic financial and economic stability.
Room "DZ Bank", House of Finance
Campus Westend, Goethe University Frankfurt
Please register for these events at lectures[at]imfs-frankfurt[dot]de