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The Relationship between Monetary Policy and Uncertainty in Advanced Economies: Evidence from Time- and Frequency-Domains


  • Semih Emre Cekin

    () (Department of Economics, Turkish-German University)

  • Besma Hkiri

    () (College of Business, University of Jeddah, Saudi Arabia)

  • Aviral Kumar Tiwari

    () (Montpellier Business School, 2300, avenue des Moulins, 34185 Montpellier cedex 4 0002, France)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria, South Africa)


In this work we offer new insight into the relationship between interest rates and uncertainty for several advanced economies (Canada, EU, Japan, UK, US) for the period 2003-2018. For this purpose, we utilize the wavelets methodology, which allows us to analyze how the relationship changes over time and across different frequencies and to make inference about causality. To analyze a wide range of frequencies, and because our analysis contains the post-2008 period as well, we use the daily shadow interest rate measure of Krippner (2012, 2013) to capture the stance of monetary policy making at the zero lower bound. We also use the daily uncertainty measure by Scotti (2016), which measures uncertainty related to the real economy. Our findings suggest that there is significant comovement across 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

  • Semih Emre Cekin & Besma Hkiri & Aviral Kumar Tiwari & Rangan Gupta, 2019. "The Relationship between Monetary Policy and Uncertainty in Advanced Economies: Evidence from Time- and Frequency-Domains," Working Papers 201904, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201904

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    References listed on IDEAS

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    More about this item


    Interest Rate; Uncertainty; Advanced Economies; Wavelet;

    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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