The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases...

Monetary policy-makers face various types of uncertainty and these uncertainties are exacerbated during episodes of a financial crisis. Blinder (2004) suggests that monetary policy committees help to make better decisions in the presence of uncertainty. In this paper, we explore monetary policy...