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The effectiveness of unconventional monetary policy on risk aversion and uncertainty

Leonidas S. Rompolis
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Leonidas S. Rompolis: Athens University of Economics and Business

No 231, Working Papers from Bank of Greece

Abstract: This paper examines the impact of unconventional monetary policy of ECB measured by its balance sheet expansion on euro area equity market uncertainty and investors risk aversion within a structural VAR framework. An expansionary balance sheet shock decreases both risk aversion and uncertainty at least in the medium-run. A negative shock on policy rates has also a negative impact on risk aversion and uncertainty. These results are generally robust to different specifications of the VAR model, estimation procedures and identification schemes. Conversely, periods of high uncertainty are followed by a looser conventional monetary policy. The effect of uncertainty on ECB’s total assets and of risk aversion on conventional or unconventional monetary policy is not always statistically significant.

Keywords: Unconventional monetary policy; euro area; risk aversion; uncertainty (search for similar items in EconPapers)
JEL-codes: C32 E44 E52 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-upt
Date: 2017-07
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