Market uncertainty, risk aversion, and macroeconomic expectations

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In a dynamic model, this paper characterises the interaction between macroeconomic expectation, risk aversion, and market uncertainty. From survey dispersion forecast, we capture macroeconomic expectation using monetary policy uncertainty, business outlook, and consumer confidence, while risk aversion and market uncertainty measures are derived from realised and implied volatilities. We find that shocks to these dispersion measures significantly affect market uncertainty, risk aversion, and macroeconomic variables. Shocks to monetary policy certainty, business outlook, and consumer confidence significantly lower risk aversion and market uncertainty. Shocks to monetary policy stance have a persistent, but minute effect on risk aversion, uncertainty, and macroeconomic variables.
Original languageEnglish
Pages (from-to)1977-1995
Number of pages19
JournalEmpirical Economics
Issue number4
Early online date9 Jul 2019
Publication statusPublished - Oct 2020


  • Business confidence
  • Monetary policy
  • Risk aversion
  • Survey
  • Uncertainty


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