Risk, uncertainty and monetary policy

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 229

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Institutions and Services: General ; Business Fluctuations; Cycles
• Subject: Monetary policy ; Option implied volatility ; Risk aversion ; Uncertainty ; Business cycle ; Stock market volatility dynamics ; Finanzmarkt ; Entscheidung unter Risiko ; Risikoaversion ; Aktienmarkt ; Geldpolitik ; Volatilität ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bekaert, Geert ; Hoerova, Marie ; Lo Duca, Marco
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/144441
• Last update: 10.03.2025, 11:44 AM CET