The Response of Tail Risk Perceptions to Unconventional Monetary Policy
American Economic Journal: Macroeconomics
vol. 8,
no. 2, April 2016
(pp. 111-36)
Abstract
We examine the impact of unconventional monetary policy (UMP) on stock market tail risk and risks of extreme interest rate movements. We find that UMP announcements substantially reduced option-implied equity market tail risks and interest rate risks. Most of the impact derives from forward guidance rather than asset purchase announcements. Communication about the future path of policy rates reduced volatility expectations of long-term rates and the associated risk premia. The reaction of equity market tail risk, in turn, points to the risk-taking channel of monetary policy, as the commitment to low funding rates may have relaxed financial intermediaries' riskbearing constraints. (JEL E52, E58, G12, G13, G14)Citation
Hattori, Masazumi, Andreas Schrimpf, and Vladyslav Sushko. 2016. "The Response of Tail Risk Perceptions to Unconventional Monetary Policy." American Economic Journal: Macroeconomics, 8 (2): 111-36. DOI: 10.1257/mac.20140016Additional Materials
JEL Classification
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G13 Contingent Pricing; Futures Pricing; option pricing
- G14 Information and Market Efficiency; Event Studies; Insider Trading
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