The Causal Relationship between Financial Stress and Uncertainties in Monetary Policy, with Investor Confidence and Expectations: An Application on E7 and G7 Countries

In this study, financial stress’ impact and monetary policy uncertainties on investor confidence and expectations were examined using monthly data for the period January 2010-April 2023. In addition, whether the relationships between variables differ between developed and developing country groups are evaluated. When determining the period of the study, the starting dates of the variables were considered. Due to deficiencies in the data of Canada, India and Russia, these countries could not be included in the study. In the study, St. Louis as an indicator of financial stress. The financial stress index (FSI) developed by the St. Louis Fed, the monetary policy uncertainty index (MPU) developed by Lucas Husted, John Rogers and Bo Sun in 2020 as an indicator of monetary policy uncertainty, consumer confidence index and market confidence index data were used as an indicator of investor confidence and expectations. According to the findings, it has been observed that financial stress and uncertainties in monetary policy have an impact on market confidence in some countries, both in E7 countries and G7 countries. Finally, while it was observed that financial stress did not affect consumer confidence in the E7 countries and only in the UK in the G7 countries, uncertainties in monetary policy were observed to be effective in various countries in both country groups.