Market uncertainty, risk aversion, and macroeconomic expectations

John Inekwe

Empirical Economics, 2020, vol. 59, issue 4, No 18, 1977-1995

Abstract: Abstract In a dynamic model, this paper characterises the interaction between macroeconomic expectation, risk aversion, and market uncertainty. From survey dispersion forecast, we capture macroeconomic expectation using monetary policy uncertainty, business outlook, and consumer confidence, while risk aversion and market uncertainty measures are derived from realised and implied volatilities. We find that shocks to these dispersion measures significantly affect market uncertainty, risk aversion, and macroeconomic variables. Shocks to monetary policy certainty, business outlook, and consumer confidence significantly lower risk aversion and market uncertainty. Shocks to monetary policy stance have a persistent, but minute effect on risk aversion, uncertainty, and macroeconomic variables.

Keywords: Monetary policy; Survey; Business confidence; Uncertainty; Risk aversion (search for similar items in EconPapers)
JEL-codes: E44 E52 G1 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-019-01732-2

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