Uncertainties under monetary tightening and easing shocks and different market states

Nicolás Blampied*, Scott Mark Romeo Mahadeo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We examine the impact of monetary policy shocks on monetary policy and stock market uncertainties, testing for asymmetric responses to tightening/easing shocks, business cycle phases, and stock market volatility regimes. To identify monetary shocks, we use a theoretical vector autoregressive model of the US economy that accounts for the interconnectedness between monetary policy and the stock market, augmenting it to accommodate for unconventional monetary policy actions at the zero lower bound. Then, with local projections, we estimate the uncertainty responses of monetary policy and the stock market to such shocks. Our main findings suggest that monetary policy holds promising potential as an effective countercyclical tool to reduce uncertainties, through easing policies in recessions and tightening policies in expansions and/or tranquil stock market volatility regimes.

Original languageEnglish
Article number103834
JournalFinance Research Letters
Early online date13 Apr 2023
Publication statusEarly online - 13 Apr 2023


  • business cycle
  • monetary policy
  • shocks
  • stock market
  • uncertainty
  • volatility

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