Geert Bekaert

Risk, Uncertainty and Monetary Policy

Coauthor(s): Marie Hoerova, Marco Lo Duca.


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We document a strong co-movement between the VIX, the stock market option-based implied volatility, and monetary policy. We decompose the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty"), and analyze their dynamic interactions with monetary policy in a structural vector autoregressive framework. A lax monetary policy decreases risk aversion after about six months. Monetary authorities react to periods of high uncertainty by easing monetary policy. These results are robust to controlling for business cycle movements. We further investigate channels through which monetary policy may affect risk aversion, e.g. through its effects on broad liquidity measures and credit.

Source: Working paper
Exact Citation:
Bekaert, Geert, Marie Hoerova, and Marco Lo Duca. "Risk, Uncertainty and Monetary Policy." Working paper, Columbia Business School/National Bureau of Economic Research, 2010.
Date: 2013