Risk Aversion, Uncertainty, and Monetary Policy in Unconventional Environments

2016 ◽  
Author(s):  
Jaehoon Hahn ◽  
Woonwook Jang ◽  
Seongjin Kim
Keyword(s):  
Monetary Policy ◽  
Risk Aversion

scholarly journals Bank risk aversion and the risk-taking channel of monetary policy in the euro area

2017 ◽  
Vol 64 (5) ◽  
pp. 607-621
Author(s):  
Silvo Dajcman
Keyword(s):  
Monetary Policy ◽  
Risk Aversion ◽  
Euro Area ◽  
Risk Taking ◽  
Academic Research ◽  
Bank Lending ◽  
Bank Risk ◽  
Econometric Methodology ◽  
Survey Responses ◽  
Panel Vector Autoregression

The financial crisis has provoked economic policy interest and academic research on the functioning and empirical verification of the risktaking channel of monetary policy. The results of this paper demonstrate how the European Central Bank?s Bank lending survey responses can be used to construct a ?pure? risk aversion indicator of banks? business lending. Using panel vector autoregression econometric methodology, we find evidence that the monetary policy affects the ?pure? risk aversion of banks and later affects business loans and inflation in the euro area. The results suggest that the risktaking channel in the euro area is operational.

Risk aversion decomposition and the impact of monetary policy surprises on aggregate tail risk aversion

2018 ◽  
Vol 19 (5) ◽  
pp. 564-590 ◽  
Author(s):  
Denghui Chen
Keyword(s):  
Monetary Policy ◽  
Risk Aversion ◽  
Event Study ◽  
Risk Premium ◽  
Rare Events ◽  
Study Analysis ◽  
Short Term ◽  
Tail Risk ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to present theoretical and empirical support that the fear component associated with rare events has an impact on risk premium and market returns. Design/methodology/approach Extension of jump-diffusion model to extract the fear component from representative agent risk aversion, Standard VAR and impulse response function analysis, Event study analysis. Findings The model implicates that investor fear of tail jumps in the financial market impacts equity risk premium. The empirical findings show both positive stock and monetary policy shocks decrease investor’s fear. It can be attributed to that a bullish stock market and an increase in interest rate reflects expanding economy, and it leads to a decrease in fear. Moreover, a surprise decline in the expected short-term rate has a mixed impact on tail risk aversion. A plausible explanation is that investors believe a surprise drop in an expected short-term rate reflects a fast deteriorating economic outlook during unconventional monetary policy period. Originality/value This paper provides theoretical framework to decompose risk aversion into two separate components: one component associated with daily volatility, and the fear component associated with rare events. The study uses risk premiums decomposed from Chicago Board Options Exchange volatility index as proxies for the two components of risk aversion, and then utilizes standard value at risk and event study analysis to show the fear component plays a role in risk premium and market return.

Risk aversion, uncertainty, and monetary policy in zero lower bound environments

2017 ◽  
Vol 156 ◽  
pp. 118-122 ◽  
Author(s):  
Jaehoon Hahn ◽  
Woon Wook Jang ◽  
Seongjin Kim
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Risk Aversion ◽  
Zero Lower Bound
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