Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144441
Authors: 
Bekaert, Geert
Hoerova, Marie
Lo Duca, Marco
Year of Publication: 
2012
Series/Report no.: 
Working Paper Research 229
Abstract: 
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.
Subjects: 
Monetary policy
Option implied volatility
Risk aversion
Uncertainty
Business cycle
Stock market volatility dynamics
JEL: 
E44
E52
G12
G20
E32
Document Type: 
Working Paper

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