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The relationship between monetary policy and uncertainty in advanced economies: Evidence from time- and frequency-domains

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  • Çekin, Semih Emre
  • Hkiri, Besma
  • Tiwari, Aviral Kumar
  • Gupta, Rangan

Abstract

In this work we offer new insight into the relationship between interest rates and uncertainty for several advanced economies (Canada, Euro Area, Japan, UK, US) for the period 2003−2018. For this purpose, we utilize wavelets, which allow us to analyze how the relationship changes over time and across different frequencies, and to make inference about causality. We also use the daily shadow interest rate measure of Krippner (2012), (2013) to capture the stance of monetary policy making at the zero lower bound, and the uncertainty measure by Scotti (2016) to measure uncertainty related to the real economy. Our findings suggest that there is significant co-movement over time and across different frequencies in all the countries we analyze. Corresponding to the similar, yet different conduct of monetary policy, we also find that the relationship exhibits different characteristics and causality in all the economies we analyze, implying that one must be careful not to draw generalized conclusions.

Suggested Citation

  • Çekin, Semih Emre & Hkiri, Besma & Tiwari, Aviral Kumar & Gupta, Rangan, 2020. "The relationship between monetary policy and uncertainty in advanced economies: Evidence from time- and frequency-domains," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 70-87.
    • Handle: RePEc:eee:quaeco:v:78:y:2020:i:c:p:70-87
    DOI: 10.1016/j.qref.2020.05.010
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    Cited by:

    1. Rangan Gupta & Syed Jawad Hussain Shahzad & Xin Sheng & Sowmya Subramaniam, 2023. "The role of oil and risk shocks in the high‐frequency movements of the term structure of interest rates: Evidence from the U.S. Treasury market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1845-1857, April.
    2. Mehmet Balcilar & Zeynel Abidin Ozdemir & Huseyin Ozdemir & Gurcan Aygun & Mark E. Wohar, 2022. "Effectiveness of monetary policy under the high and low economic uncertainty states: evidence from the major Asian economies," Empirical Economics, Springer, vol. 63(4), pages 1741-1769, October.
    3. Rangan Gupta & Syed Jawad Hussain Shahzad & Xin Sheng & Sowmya Subramaniam, 2020. "The Role of Oil and Risk Shocks in the High-Frequency Movements of the Term Structure of Interest Rates of the United States," Working Papers 202063, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Interest rate; Uncertainty; Advanced economies; Wavelet;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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