Unconventional Monetary Policy and Asset Price Risk

Information about Western Hemisphere Hemisferio Occidental

Journal Issue

Volume/Issue:: 2013/190
Series:: IMF Working Papers
Author(s):: Shaun Roache, and Marina Rousset
Publisher:: INTERNATIONAL MONETARY FUND
Published Date:: August 2013
DOI:: http://dx.doi.org/10.5089/9781484383230.001
ISBN:: 9781484383230
ISSN:: 1018-5941
Page:: 26

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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Unconventional Monetary Policy and Asset Price Risk