The Response of Tail Risk Perceptions to Unconventional Monetary Policy

Masazumi Hattori, Andreas Schrimpf and Vladyslav Sushko

American Economic Journal: Macroeconomics, 2016, vol. 8, issue 2, 111-36

Abstract: We examine the impact of unconventional monetary policy (UMP) on stock market tail risk and risks of extreme interest rate movements. We find that UMP announcements substantially reduced option-implied equity market tail risks and interest rate risks. Most of the impact derives from forward guidance rather than asset purchase announcements. Communication about the future path of policy rates reduced volatility expectations of long-term rates and the associated risk premia. The reaction of equity market tail risk, in turn, points to the risk-taking channel of monetary policy, as the commitment to low funding rates may have relaxed financial intermediaries' riskbearing constraints. (JEL E52, E58, G12, G13, G14)

JEL-codes: E52 E58 G12 G13 G14 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/mac.20140016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/mac.20140016 (application/pdf)
https://www.aeaweb.org/aej/mac/data/0802/2014-0016_data.zip (application/zip)
https://www.aeaweb.org/aej/mac/ds/0802/2014-0016_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: The response of tail risk perceptions to unconventional monetary policy (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:8:y:2016:i:2:p:111-36

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().