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Unconventional Monetary Policy and Asset Price Risk

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  • Shaun K. Roache
  • Marina V Rousset
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    Abstract

    We examine the effects of unconventional monetary policy (UMP) events in the United States on asset price risk using risk-neutral density functions estimated from options prices. Based on an event study including a key exchange rate, an equity index, and five commodities, we find that “tail risk” diminishes in the immediate aftermath of UMP events, particularly downside left tail risk. We also find that QE1 and QE3 had stronger effects than QE2. We conclude that UMP events that serve to ease policies can help to bolster market confidence in times of high uncertainty.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/190.

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    Length: 26
    Date of creation: 30 Aug 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/190

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    Related research

    Keywords: Monetary policy; United States; Asset prices; Commodity prices; Central Banks and their Policies; Futures Pricing; Option Pricing; Event Studies; futures contract; futures price; futures prices; risk-free interest rate; commodity futures contract; derivative; derivative contract; financial markets; stock price; stock market volatility; oil futures; stock market indices; commodity futures prices; present value; international capital; gold futures contract; discount rate; financial institutions; financial economics; valuation of options;

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    1. Urszula Szczerbowicz, 2011. "Are Unconventional Monetary Policies Effective?," Working Papers CELEG 1107, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    2. Tamim Bayoumi & Trung Bui, 2011. "Unforeseen Events Wait Lurking," IMF Working Papers 11/183, International Monetary Fund.
    3. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    4. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
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