Risk, uncertainty and monetary policy

Geert Bekaert, Marie Hoerova and Marco Lo Duca

No 229, Working Paper Research from National Bank of Belgium

Abstract: The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases both risk aversion and uncertainty, with the former effect being stronger. The result holds in a structural vector autoregressive framework, controlling for business cycle movements and using a variety of identification schemes for the vector autoregression in general and monetary policy shocks in particular.

Keywords: Monetary policy; Option implied volatility; Risk aversion; Uncertainty; Business cycle; Stock market volatility dynamics (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 G12 G20 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2012-10
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Risk, uncertainty and monetary policy (2013)
Working Paper: Risk, uncertainty and monetary policy (2013)
Journal Article: Risk, uncertainty and monetary policy (2010)
Working Paper: Risk, Uncertainty and Monetary Policy (2010)
Working Paper: Risk, Uncertainty and Monetary Policy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201210-229

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