IDEAS home Printed from https://ideas.repec.org/p/zbw/rwirep/240.html
   My bibliography  Save this paper

Does Monetary Policy Affect Stock Market Uncertainty? – Empirical Evidence from the United States

Author

Listed:
  • Jovanović, Mario

Abstract

This paper investigates the response of US stock market uncertainty to monetary policy of the Federal Reserve Bank. It can be shown that monetary policy significantly Granger-causes stock market confidence. By using monthly closing prices of the V IX as a stock market uncertainty proxy and a copula-based Markov approach the stable nonlinear relation between confidence and uncertainty is demonstrated. The monetary policy effect on stock market uncertainty is therefore separable into a linear and nonlinear part.

Suggested Citation

  • Jovanović, Mario, 2011. "Does Monetary Policy Affect Stock Market Uncertainty? – Empirical Evidence from the United States," Ruhr Economic Papers 240, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:240
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/45324/1/655983791.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Xiaohong & Fan, Yanqin, 2006. "Estimation of copula-based semiparametric time series models," Journal of Econometrics, Elsevier, vol. 130(2), pages 307-335, February.
    2. Bekaert, Geert & Hoerova, Marie & Lo Duca, Marco, 2013. "Risk, uncertainty and monetary policy," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 771-788.
    3. Aoki,Masanao & Yoshikawa,Hiroshi, 2011. "Reconstructing Macroeconomics," Cambridge Books, Cambridge University Press, number 9781107634206, January.
    4. Tim Bollerslev & Natalia Sizova & George Tauchen, 2011. "Volatility in Equilibrium: Asymmetries and Dynamic Dependencies," Review of Finance, European Finance Association, vol. 16(1), pages 31-80.
    5. Fabio Fornari & Antonio Mele, 2013. "Financial Volatility and Economic Activity," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 2, pages 155-198, December.
    6. Jovanovic Mario & Zimmermann Tobias, 2010. "Stock Market Uncertainty and Monetary Policy Reaction Functions of the Federal Reserve Bank," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-19, July.
    7. S. Satterthwaite & T. Hutchinson, 1978. "A generalisation of Gumbel's bivariate logistic distribution," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 25(1), pages 163-170, December.
    8. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    9. Ali, Mir M. & Mikhail, N. N. & Haq, M. Safiul, 1978. "A class of bivariate distributions including the bivariate logistic," Journal of Multivariate Analysis, Elsevier, vol. 8(3), pages 405-412, September.
    10. Cambanis, Stamatis, 1977. "Some properties and generalizations of multivariate Eyraud-Gumbel-Morgenstern distributions," Journal of Multivariate Analysis, Elsevier, vol. 7(4), pages 551-559, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mario Jovanovic, 2011. "Does Monetary Policy Affect Stock Market Uncertainty? – Empirical Evidence from the United States," Ruhr Economic Papers 0240, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0240 is not listed on IDEAS
    3. Cremers, Martijn & Fleckenstein, Matthias & Gandhi, Priyank, 2021. "Treasury yield implied volatility and real activity," Journal of Financial Economics, Elsevier, vol. 140(2), pages 412-435.
    4. Bachmann, Rüdiger & Born, Benjamin & Elstner, Steffen & Grimme, Christian, 2019. "Time-varying business volatility and the price setting of firms," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 82-99.
    5. John Nkwoma Inekwe, 2020. "Market uncertainty, risk aversion, and macroeconomic expectations," Empirical Economics, Springer, vol. 59(4), pages 1977-1995, October.
    6. Bonciani, Dario, 2015. "Estimating the effects of uncertainty over the business cycle," MPRA Paper 65921, University Library of Munich, Germany.
    7. Idriss Fontaine, 2021. "Uncertainty and Labour Force Participation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 437-471, April.
    8. Ahmed, M. Iqbal & Cassou, Steven P., 2021. "Asymmetries in the effects of unemployment expectation shocks as monetary policy shifts with economic conditions," Economic Modelling, Elsevier, vol. 100(C).
    9. Marfatia, Hardik A., 2015. "Monetary policy's time-varying impact on the US bond markets: Role of financial stress and risks," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 103-123.
    10. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    11. Alessandro Paolo Rigamonti & Giulio Greco & Mariarita Pierotti & Alessandro Capocchi, 2024. "Macroeconomic uncertainty and earnings management: evidence from commodity firms," Review of Quantitative Finance and Accounting, Springer, vol. 62(4), pages 1615-1649, May.
    12. Cosmas Dery & Apostolos Serletis, 2021. "Disentangling the Effects of Uncertainty, Monetary Policy and Leverage Shocks on the Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(5), pages 1029-1065, October.
    13. Svetlana Makarova, 2014. "Risk and Uncertainty: Macroeconomic Perspective," UCL SSEES Economics and Business working paper series 129, UCL School of Slavonic and East European Studies (SSEES).
    14. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    15. Wensheng Kang & Ronald A. Ratti & Joaquin Vespignani, 2020. "Impact of global uncertainty on the global economy and large developed and developing economies," Applied Economics, Taylor & Francis Journals, vol. 52(22), pages 2392-2407, May.
    16. Bandi, Federico M. & Bretscher, Lorenzo & Tamoni, Andrea, 2023. "Return predictability with endogenous growth," Journal of Financial Economics, Elsevier, vol. 150(3).
    17. Aleksejs Krecetovs & Pasquale Della Corte, 2016. "Macro uncertainty and currency premia," 2016 Meeting Papers 624, Society for Economic Dynamics.
    18. Herwartz, Helmut & Lange, Alexander & Maxand, Simone, 2019. "Statistical identification in SVARs - Monte Carlo experiments and a comparative assessment of the role of economic uncertainties for the US business cycle," University of Göttingen Working Papers in Economics 375, University of Goettingen, Department of Economics.
    19. Jesus Fernandez-Villaverde & Pablo Guerron-Quintana & Juan F. Rubio-Ramirez & Martin Uribe, 2011. "Risk Matters: The Real Effects of Volatility Shocks," American Economic Review, American Economic Association, vol. 101(6), pages 2530-2561, October.
    20. Marcello Pericoli & Giovanni Veronese, 2015. "Forecaster heterogeneity, surprises and financial markets," Temi di discussione (Economic working papers) 1020, Bank of Italy, Economic Research and International Relations Area.
    21. Geert Bekaert & Eric C. Engstrom & Nancy R. Xu, 2022. "The Time Variation in Risk Appetite and Uncertainty," Management Science, INFORMS, vol. 68(6), pages 3975-4004, June.

    More about this item

    Keywords

    stock market confidence; temporal dependence; copula;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:rwirep:240. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/rwiesde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.