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Quantitative easing, uncertainty, and risk aversion

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  • Rompolis, Leonidas S.

Abstract

This study examines the impact of European Central Bank (ECB) monetary policy surprises on economic uncertainty and investor risk aversion. We identify four factors using a high-frequency event-study approach. These factors measure surprises regarding the current setting of policy rates (Target), the bank’s future policy path (Forward Guidance), and quantitative easing (QE). The fourth factor reflects unexpected news about future macroeconomic conditions. Our main finding is that quantitative tightening surprises, proxied by positive QE surprises, increase economic uncertainty and investor risk aversion. Additionally, we document the significant response of key macroeconomic variables to these surprises.

Suggested Citation

  • Rompolis, Leonidas S., 2025. "Quantitative easing, uncertainty, and risk aversion," Journal of Banking & Finance, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:jbfina:v:177:y:2025:i:c:s0378426625000950
    DOI: 10.1016/j.jbankfin.2025.107475
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    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
    • 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

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