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Unconventional Monetary Policy and Asset Price Risk

Author/Editor: Shaun K. Roache | Marina V Rousset
Authorized for Distribution: August 30, 2013
Electronic Access: Free Full Text (PDF file size is 742KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We examine the effects of unconventional monetary policy (UMP) events in the United States on asset price risk using risk-neutral density functions estimated from options prices. Based on an event study including a key exchange rate, an equity index, and five commodities, we find that “tail risk” diminishes in the immediate aftermath of UMP events, particularly downside left tail risk. We also find that QE1 and QE3 had stronger effects than QE2. We conclude that UMP events that serve to ease policies can help to bolster market confidence in times of high uncertainty.
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Series: Working Paper No. 13/190
Subject(s): Monetary policy | United States | Asset prices | Commodity prices
    Published:   August 30, 2013        
    ISBN/ISSN:   9781484383230/1018-5941   Format:   Paper
    Stock No:   WPIEA2013190   Pages:   26
    Price:   US$18.00
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