Unconventional Monetary Policy, Media Uncertainty, and Expected Stock Market Volatility
43 Pages Posted: 6 Jun 2014 Last revised: 24 Jul 2014
Date Written: July 21, 2014
Abstract
This paper investigates the relationship between unconventional monetary policy, media uncertainty, and expected stock market volatility. We find that (1) expansionary unconventional monetary policy shocks induce higher media uncertainty as news reports aim to describe the uncertain economic environment leading up to these monetary policy events; and (2) that expansionary unconventional monetary shocks, when coupled with higher media uncertainty, lead to higher subsequent realizations of expected stock market volatility. These effects, which are asymmetric across the different rounds of the Federal Reserve's Quantitative Easing program, then reverse after several days in line with a behavioral interpretation of the results.
Keywords: Unconventional Monetary Policy, Uncertainty
JEL Classification: E52, G02
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