Download this Paper Open PDF in Browser

The Response of Tail Risk Perceptions to Unconventional Monetary Policy

52 Pages Posted: 19 Feb 2015  

Masazumi Hattori

Bank for International Settlements (BIS)

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department

Vladyslav Sushko

Bank for International Settlements (BIS) - Monetary and Economic Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2015

Abstract

We examine the impact of unconventional monetary policy (UMP) on tail risks in the stock market and risks of extreme interest rate movements. We find that UMP announcements substantially reduced option-implied equity market tail risks and interest rate risks. Most of the impact derives from forward guidance rather than asset purchase announcements. While the response of interest rate risks is in line with common explanations based on signalling and portfolio rebalancing channels, the reaction of tail risks in the equity market points to the risk-taking channel of monetary policy, as the commitment to low funding rates may have relaxed financial intermediaries' risk-bearing constraints.

Keywords: Unconventional Monetary Policy, Risk-Taking Channel, Forward Guidance, Tail Risk, Event Study

JEL Classification: E52, G12, G14

Suggested Citation

Hattori, Masazumi and Schrimpf, Andreas and Sushko, Vladyslav, The Response of Tail Risk Perceptions to Unconventional Monetary Policy (January 20, 2015). Available at SSRN: https://ssrn.com/abstract=2566769 or http://dx.doi.org/10.2139/ssrn.2566769

Masazumi Hattori

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Andreas Schrimpf

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Vladyslav Sushko (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Paper statistics

Downloads
149
Rank
130,299
Abstract Views
508