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Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world

Author

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  • Chao Liang

    (Southwest Jiaotong University)

  • Yanran Hong

    (Southwest Jiaotong University)

  • Luu Duc Toan Huynh

    (Queen Mary University of London)

  • Feng Ma

    (Southwest Jiaotong University)

Abstract

Considering the dramatically increasing impact of the COVID-19 outbreak on monetary policy and the uncertainty in the financial system, we aim to examine the dynamic asymmetric risk transmission between financial stress and monetary policy uncertainty. Our sample covers 30 years of data. We first employ the conventional Granger causality test to examine the average relationship between financial stress and monetary policy uncertainty, and the results cannot provide evidence of causality between them. However, from an asymmetric perspective, we further detect the strongly apparent existence of the asymmetric structure of causality between them. Finally, we conduct further research on the asymmetric impacts from a time-varying perspective. The time-varying test finds that this relationship can be influenced by major events, especially the dot-com bubble, the 2009 financial crisis, and the current COVID-19 pandemic. Thus, one can learn more information about the influencing mechanism between financial stress and monetary policy with our work, which may be beneficial for making better decisions in the future.

Suggested Citation

  • Chao Liang & Yanran Hong & Luu Duc Toan Huynh & Feng Ma, 2023. "Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1543-1567, May.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:4:d:10.1007_s11156-023-01140-9
    DOI: 10.1007/s11156-023-01140-9
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    Cited by:

    1. Liu, Shan & Li, Ziwei, 2023. "Macroeconomic attention and oil futures volatility prediction," Finance Research Letters, Elsevier, vol. 57(C).
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    More about this item

    Keywords

    Financial stress; Monetary policy uncertainty; Granger-causality test; Asymmetric; Time-varying;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F39 - International Economics - - International Finance - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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