Risk, Uncertainty and Monetary Policy

@inproceedings{Bekaert2010RiskUA,
  title={Risk, Uncertainty and Monetary Policy},
  author={Geert Bekaert and Marie Hoerova and Marco Lo Duca},
  year={2010}
}
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… CONTINUE READING

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