Epstein-Zin preferences to study the volatility implications of a monetary policy shock. An unexpected increases in the policy … volatility effects of the shock are driven by agents' concern about the (in)ability of the monetary authority to reverse … rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard …

We develop a VAR that allows the estimation of the impact of monetary policy shocks on volatility. Estimates for the US … suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about … these volatility effects are driven by the coexistence of agents' fears of unemployment and concerns about the (in) ability …