Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153998
Authors: 
Bekaert, Geert
Hoerova, Marie
Lo Duca, Marco
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1565
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. The effect of monetary policy on risk aversion is also apparent in regressions using high frequency data.
Subjects: 
business cycle
monetary policy
option implied volatility
risk aversion
uncertainty
JEL: 
E44
E52
G12
G20
E32
Document Type: 
Working Paper

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