Date of Award


Degree Type

Doctoral Dissertation

Degree Name

Doctor of Business Administration (DBA)


Jack Welch College of Business


Submitted in partial fulfillment of the requirements for the degree of Doctor of Business Administration in Finance, Sacred Heart University, Jack Welch College of Business & Technology.

Dissertation Supervisor

Dr. Lucjan Orlowski

Committee Member

Dr. Carolyne Soper

Committee Member

Dr. Michael Gorman


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 fundamentals is predominantly neutral at normal, predictable economic conditions. It becomes however very pronounced at times of financial distress, in the environment of elevated market risk coupled with uncertain expectations for macroeconomic variables. Shocks in VIX have a longer impact on macroeconomic stability than that generally claimed in the prior literature. The Markov switching tests for CPI and breakeven inflation indicate that households and businesses are concerned primarily about episodes of increasing inflation, while bond market participants are worried mainly about declining inflation and deflation.

JEL Classification

C54, E31, G17

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.



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