Does Monetary Policy Affect Stock Market Uncertainty? – Empirical Evidence from the United States

Mario Jovanović

No 240, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper investigates the response of US stock market uncertainty to monetary policy of the Federal Reserve Bank. It can be shown that monetary policy significantly Granger-causes stock market confidence. By using monthly closing prices of the V IX as a stock market uncertainty proxy and a copula-based Markov approach the stable nonlinear relation between confidence and uncertainty is demonstrated. The monetary policy effect on stock market uncertainty is therefore separable into a linear and nonlinear part.

Keywords: stock market confidence; temporal dependence; copula (search for similar items in EconPapers)
JEL-codes: C12 C22 E43 E52 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:240

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