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Risk, uncertainty and monetary policy

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  • Geert Bekaert
  • Marie Hoerova

Abstract

This article documents a strong co-movement between a measure of stock market risk (the VIX) and monetary policy. It analyses which of two components of the VIX, risk aversion or uncertainty, are primary drivers of this co-movement. The main findings are that an easing of monetary policy leads to a decrease in risk aversion in the medium run while higher uncertainty leads to a laxer monetary policy. JEL Classification: E44, E52, G12, G20, E32

Suggested Citation

  • Geert Bekaert & Marie Hoerova, 2010. "Risk, uncertainty and monetary policy," Research Bulletin, European Central Bank, vol. 10, pages 11-13.
    • Handle: RePEc:ecb:ecbrbu:2010:0010:3
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    More about this item

    Keywords

    monetary policy; risk aversion; uncertainty; business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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