Financial uncertainty, risk aversion and monetary policy

Nkwoma John Inekwe*

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

We estimate the response of uncertainty/risk aversion to monetary policy actions in both the financial sector and the aggregate economy using a structural vector autoregressive model. When compared with other sectors, our constructs reveal that financial risk aversion/uncertainty has greater correlation with the aggregate risk aversion and uncertainty. Our analysis reveals that financial risk aversion and uncertainty exhibit stronger interdependence with monetary policy actions than aggregate uncertainty and risk aversion. Tighter monetary policy induces risk aversion and uncertainty increment in both the financial sector and the aggregate market. However, the financial sector risk aversion and uncertainty responses are of greater magnitude.

Original languageEnglish
Pages (from-to)939-961
Number of pages23
JournalEmpirical Economics
Volume51
Issue number3
DOIs
Publication statusPublished - Nov 2016
Externally publishedYes

Keywords

  • forecast
  • variance
  • risk
  • uncertainty
  • monetary policy

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