Download this Paper Open PDF in Browser

Risk, Uncertainty and Monetary Policy

51 Pages Posted: 18 Oct 2010  

Geert Bekaert

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

Marie Hoerova

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Marco Lo Duca

European Central Bank (ECB)

Multiple version iconThere are 6 versions of this paper

Date Written: September 2010

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.

Suggested Citation

Bekaert, Geert and Hoerova, Marie and Lo Duca, Marco, Risk, Uncertainty and Monetary Policy (September 2010). NBER Working Paper No. w16397. Available at SSRN: https://ssrn.com/abstract=1692513

Geert Bekaert (Contact Author)

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

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Marco Lo Duca

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Paper statistics

Downloads
17
Abstract Views
462