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Risk aversion, uncertainty, and monetary policy in zero lower bound environments

Jaehoon Hahn, Woon Wook Jang and Seongjin Kim

Economics Letters, 2017, vol. 156, issue C, 118-122

Abstract: Bekaert et al. (2013) show that a lax monetary policy decreases both risk aversion and uncertainty, and that shocks to risk aversion and uncertainty induce changes in monetary policy. We extend their analysis for the pre-crisis period to the post-crisis period by using a “shadow short rate” as a proxy for unconventional monetary policies in zero lower bound environments. We find that the empirical link between monetary policy, risk aversion, and uncertainty found in Bekaert et al. (2013) persists even in the post-crisis period, but the link is uncovered only when the shadow short rates are used to measure the monetary policy stance.

Keywords: Monetary policy; Shadow short rate; Risk aversion; Uncertainty (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecolet:v:156:y:2017:i:c:p:118-122