Unconventional Monetary Policy and Asset Price Risk

27 Pages Posted: 26 Sep 2013

See all articles by Shaun K. Roache

Shaun K. Roache

International Monetary Fund (IMF)

Marina Rousset

International Monetary Fund (IMF) - IMF Institute

Date Written: August 2013

Abstract

We examine the effects of unconventional monetary policy (UMP) events in the United States on asset price risk using risk-neutral density functions estimated from options prices. Based on an event study including a key exchange rate, an equity index, and five commodities, we find that “tail risk” diminishes in the immediate aftermath of UMP events, particularly downside left tail risk. We also find that QE1 and QE3 had stronger effects than QE2. We conclude that UMP events that serve to ease policies can help to bolster market confidence in times of high uncertainty.

Keywords: Monetary policy, United States, Asset prices, Commodity prices, Central Banks and their Policies, Futures Pricing, Option Pricing, Event Studies

JEL Classification: E58, G13, G14

Suggested Citation

Roache, Shaun K. and Rousset, Marina, Unconventional Monetary Policy and Asset Price Risk (August 2013). IMF Working Paper No. 13/190, Available at SSRN: https://ssrn.com/abstract=2331325

Shaun K. Roache (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marina Rousset

International Monetary Fund (IMF) - IMF Institute ( email )

700 19 th Street NW
Washington, DC 20431
United States

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