Abstract

http://ssrn.com/abstract=1561171
 
 

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Risk, Uncertainty and Monetary Policy


Geert Bekaert


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Marie Hoerova


European Central Bank (ECB)

Marco Lo Duca


European Central Bank (ECB)

May 2013

Journal of Monetary Economics, Vol. 60, Vol. 7, pp. 771-788, 2013

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.

Number of Pages in PDF File: 34

Keywords: Monetary policy; Option implied volatility; Risk aversion; Uncertainty; Business cycle

JEL Classification: E44, E52, G12, G20, E32


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Date posted: March 8, 2010 ; Last revised: September 17, 2015

Suggested Citation

Bekaert, Geert and Hoerova, Marie and Lo Duca, Marco, Risk, Uncertainty and Monetary Policy (May 2013). Journal of Monetary Economics, Vol. 60, Vol. 7, pp. 771-788, 2013. Available at SSRN: http://ssrn.com/abstract=1561171 or http://dx.doi.org/10.2139/ssrn.1561171

Contact Information

Geert Bekaert
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Marie Hoerova (Contact Author)
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marco Lo Duca
European Central Bank (ECB) ( email )
Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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