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VFCI / vfciBusinessCycles

Research project exploring the relationship between financial conditions and business cycles.
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Link VFCI Derivation and FEVD Identification #65

Open fernando-duarte opened 3 months ago

fernando-duarte commented 3 months ago

We want to show the relationship between deriving the VFCI and selecting the business cycle shock that maximizes the forecast error variance for unemployment.

Thoughts:

  1. The two are both constructed based off of volatilities / variances of real variables
  2. They both perform maximizations:
    • The business cycle shock maximizes the forecast error variance of unemployment
    • The VFCI maximizes the explained portion of consumption growth residual volatility, given asset prices
    • This happens through the actual OLS estimation
fernando-duarte commented 3 months ago

Look at #43