The Impact Caused by the U.S. Increasing Real Interest Rate on Volatility Index

Abstract

This paper mainly focuses on the impact of the US interest rate hike on the volatility index after March 16, 2020. In this article, daily, weekly, and monthly volatility index data from 2010 to 2022 are extracted and the ARIMA model was used to determine and analyze the difference between actual value and fitted value of volatility index after increased rate. The study forecasts the effect of rate hikes on volatility index in short-, medium-, and long-term perspective. According to the ARIMA model, the interest rate hike has the greatest impact on the volatility index in the medium term, which is not obvious in the short term, and the impact of interest rate hike gradually decreases in the long term, and finally returns to the normal trend. Compared with other studies on the impact of interest rate hike on the overall economic activity, this paper only focuses on the impact of interest rate hike on the volatility index. Through the research of this paper, the policy makers can adjust the rate of interest rate hike according to the speed and amplitude of investors' response to the policy, so as to produce turbulence and panic on the stock market to a minimum extent.