The heterogeneous response of financial uncertainty to monetary policy

Understanding monetary policy transmission to financial markets is crucial for policymakers and investors, but existing literature focuses on first-order effects and market-wide aggregated measures. To address this gap, the present paper investigates the responses of asset class-specific financial uncertainty to distinct dimensions of monetary policy shocks. We conduct our analysis with a Bayesian extended stochastic volatility model, allowing for the effect of monetary policy shocks on second-order moments used to compute our uncertainty measures. Then, we decompose monetary policy shocks into changes in the yield curve's level, slope, and curvature during a high-frequency time window around policy announcements, refining previous approaches relying on daily changes. Applying this approach to a wide array of 47 sovereign bonds, corporate bonds, stocks, and exchange rates in the euro area, we document heterogeneous and persistent effects of these shocks on asset-specific financial uncertainty.