The effect of monetary policy on investors’ risk perception: Evidence from the UK and Germany
AbstractWe use vector autoregressive models to estimate the effect of monetary policy on investors’ risk aversion. The latter is proxied by a variety of option based implied volatility indices for Germany and the UK. There is clear evidence of a procyclical response between monetary policy and risk aversion. Monetary policy shocks affect UK investors risk attitude for longer periods, while they have a stronger impact on German investors for a shorter period of time. There is also evidence that the Bank of England reacts to increases in risk aversion with expansionary monetary policy. In contrast, the ECB appears to tighten monetary policy, although this result may be explained by the ECB making policy decisions for a group of countries. These results are robust w.r.t. to the various risk aversion and monetary policy stance proxies.
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Bibliographic InfoPaper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 1107.
Length: 38 pages
Date of creation: May 2011
Date of revision:
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Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
More information through EDIRC
Monetary policy; Risk aversion; impulse responses;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-14 (All new papers)
- NEP-CBA-2011-05-14 (Central Banking)
- NEP-EEC-2011-05-14 (European Economics)
- NEP-MAC-2011-05-14 (Macroeconomics)
- NEP-MON-2011-05-14 (Monetary Economics)
- NEP-UPT-2011-05-14 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yener Altunbas & Leonardo Gambacorta & David Marques-Ibanez, 2010.
"Does monetary policy affect bank risk-taking?,"
BIS Working Papers
298, Bank for International Settlements.
- Dubecq, S. & Mojon, B. & Ragot, X., 2009. "Fuzzy Capital Requirements, Risk-Shifting and the Risk Taking Channel of Monetary Policy," Working papers, Banque de France 254, Banque de France.
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