Risk, uncertainty and monetary policy

Geert Bekaert, Marie Hoerova and Marco Lo Duca

Journal of Monetary Economics, 2013, vol. 60, issue 7, 771-788

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. The effect of monetary policy on risk aversion is also apparent in regressions using high frequency data.

Keywords: Monetary policy; Option implied volatility; Risk aversion; Uncertainty; Business cycle (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (616)

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Related works:
Working Paper: Risk, uncertainty and monetary policy (2013)
Working Paper: Risk, uncertainty and monetary policy (2012)
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:eee:moneco:v:60:y:2013:i:7:p:771-788

DOI: 10.1016/j.jmoneco.2013.06.003

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