Risk, Uncertainty and Monetary Policy

By Geert Bekaert, Marie Hoerova, M. Duca. Social Science Research Network, 2013

1,227 citations recorded by the source corpus.

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. The effect of monetary policy on risk aversion is also apparent in regressions using high frequency data.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/006f29a34a525da8d78fcf211f78c9883e9d4f0c

Citations in the corpus

• Monetary policy and risk taking (2015, neutral): “In a related paper, Bekaert Hoerova and Lo Duca [12] investigate the separate impact of monetary policy on the two components of implied volatility using SVAR.”
• U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies (2014, neutral): “In particular, they use two alternative measures of monetary surprise: the difference between the average Fed funds rate in a given month and the one month futures rate on the last day of the previous month, as in Bernanke and Kuttner (2005), and, for the zero-lower-bound period, they consider the s”
• Risk, Uncertainty, and Expected Returns (2011, neutral): “Distinct from the uncertainty that arises from disagreement among professional forecasters, Bekaert et al. (2009) focus on economic uncertainty proxied by the conditional volatility of dividend growth and find that both the conditional volatility of cash flow growth and time-varying risk aversion are…”
• Policy News and Stock Market Volatility (2019, neutral): “(2005) on stock market reactions to unemployment news, Killian and Park (2009) on the role of oil price shocks, and Bekaert et al. (2013) on the relationship between monetary policy and stock market volatility.”
• The Time Variation in Risk Appetite and Uncertainty (2019, neutral): “…in monetary economics, recent research suggests a potential link be-tween loose monetary policy and greater risk appetite of market participants, spurring a literature that explores what structural economic factors drive risk aversion changes (Rajan 2006, Adrian and Shin 2009, Bekaert et al. 2013).”
• Capital Flows and the Risk-Taking Channel of Monetary Policy (2015, neutral): “We see that the main themes in Figure 13 are preserved in this (7)Bekaert et al. (2010) find that the impact of the real rate on risk-adversion becomes significant after 4 months and remains significant till month 34.”
• Policy Risk and the Business Cycle (2014, neutral): “Despite our relatively short sample size and the low power of tests for heteroskedasticity, the null hypothesis of homoskedastic shocks can be rejected at the 10% level for all series except TFP.”
• The effectiveness of unconventional monetary policy at the zero lower bound : a cross-country analysis (2014, neutral): “…that the sign restriction is also consistent with the negative link between financial market liquidity and volatility established by Brunnermeier and Pedersen (2009) and evidence on the interaction between the VIX and conventional monetary policy presented in Bekaert, Hoerova, and Lo Duca (2010).”
• Climate Change News Risk and Corporate Bond Returns (2020, neutral): “Bekaert, Hoerova, and Lo Duca (2013), and Bali et al. (2017)).”
• On Measuring Uncertainty and its Impact on Investment: Cross-Country Evidence from the Euro Area (2017, neutral): “…the series of the actual volatility of the CAC40 and of the implied volatility measured by the VCAC, which is available as of 2000.6 For Italy 3 Bekaert, Hoerova, and Duca (2013) decompose an index of implied stock market volatility into two components: one that refers to expected stock market…”