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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Marco Lo Duca

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September 2010Risk, Uncertainty and Monetary Policy
with Geert Bekaert, Marie Hoerova: w16397
The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases both risk aversion and uncertainty, with the former effect being stronger. The result holds in a structural vector autoregressive framework, controlling for business cycle movements and using a variety of identification schemes for the vector autoregression in general and monetary policy shocks in particular.

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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