Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world

ABSTRACT

Considering the dramatically increasing impact of the COVID-19 outbreak on monetary policy and the uncertainty in the financial system, we aim to examine the dynamic asymmetric risk transmission between financial stress and monetary policy uncertainty. Our sample covers 30 years of data. We first employ the conventional Granger causality test to examine the average relationship between financial stress and monetary policy uncertainty, and the results cannot provide evidence of causality between them. However, from an asymmetric perspective, we further detect the strongly apparent existence of the asymmetric structure of causality between them. Finally, we conduct further research on the asymmetric impacts from a time-varying perspective. The time-varying test finds that this relationship can be influenced by major events, especially the dot-com bubble, the 2009 financial crisis, and the current COVID-19 pandemic. Thus, one can learn more information about the influencing mechanism between financial stress and monetary policy with our work, which may be beneficial for making better decisions in the future. © 2023, The Author(s).