The issue of financial volatility, especially since financial deregulation, has given rise to concerns regarding the effects of increased financial volatility on real economic volatility. Explaining the causes of financial volatility along with demonstrating the effects of financial volatility on real economic activity represents a substantial challenge to both theorists and practitioners of finance. In this book identifying the causes of increased financial volatility is a first step toward increasing both financial analysts and policy makers’ understanding of the interrelated causes of financial volatility. The second step involves demonstrating the effects of financial volatility on the real sector of the economy by exploring models which examine the channels through which financial volatility influences fundamental economic variables. Overall the empirical results indicate that while financial volatility has increased to some extent over the last decade or so, this volatility has been transferred non-uniformly towards increasing volatility of both real and financial activity.