Essays in empirical finance and monetary policy
Frederiek van Holle
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Frederiek van Holle: Tilburg University, School of Economics and Management
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This dissertation consists of three essays. In the first paper, “Stock-Bond Correlations, Macroeconomic Regimes and Monetary Policy”, we link the evolution of stock-bond correlations for an international sample to both local and global regimes in inflation, the output gap and monetary policy. We find that negative stock-bond correlations only occur during regimes of low to medium inflation, combined with an accommodating monetary policy. This observation is highly relevant in the current environment of potential policy normalization by central banks. Normalizing policy could push stock-bond correlations back into positive territory resulting in a higher volatility of balanced investment portfolios. The second paper, “The Dynamic Risk Profile of Currency Carry Strategies”, contributes to a better understanding of the time-varying risk exposure of the currency carry strategy applied on the G10 currencies. Risk factor migration over time is captured using Bayesian model averaging techniques. The third paper, “Monetary Policy Transmission and the Impact on Financial Assets, the Real Economy and Inflation”, studies the different dimensions of conventional and unconventional monetary policy. The recent unfolding of unconventional policy measures like QE and forward guidance and the presence of the so-called zero lower-bound on nominal interest rates further complicate the transmission. I show that asymmetrical policy transmission challenges the current focus on policy normalization after a decade of ultra-loose monetary policy.
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