NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Shock Elasticities and Impulse Responses

Jaroslav Borovička, Lars P. Hansen, Jose A. Scheinkman

NBER Working Paper No. 20104
Issued in May 2014
NBER Program(s):   AP

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.

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Document Object Identifier (DOI): 10.3386/w20104

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