Unconventional Monetary and Uncertainty

Abstract

Using a structural factor-augmented VAR and a large novel database of daily time series, we examine the impact of unconventional monetary policy on financial and economic uncertainty. Our findings indicate that expansionary unconventional monetary shocks lead to large reductions in uncertainty across markets. A surprise unconventional monetary easing lowers equity market, policy, housing and mortgage market, exchange rate, and Treasury market uncertainty. Research results further suggest that these reductions in uncertainty differ in magnitude across asset classes and are largest for equity markets. Last, we find that these effects on uncertainty diminish quickly and dissipate after approximately 100 days.

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