Risk, uncertainty and monetary policy
By: Geert Bekaert, Marie Hoerova, Marco Lo Duca
Contributors: Hoerova, Marie; Lo Duca, Marco; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16397; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16397.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "We document a strong co-movement between the VIX, the stock market option-based implied volatility, and monetary policy.  We decompose the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty"), and analyze their dynamic interactions with monetary policy in a structural vector autoregressive framework.  A lax monetary policy decreases risk aversion after about five months.  Monetary authorities react to periods of high uncertainty by easing monetary policy.  These results are robust to controlling for business cycle movements.  We further investigate channels through which monetary policy may affect risk aversion, e.g., through its effects on broad liquidity measures and credit"--National Bureau of Economic Research web site.
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