Do Þ nancial markets price monetary policy uncertainty ? ∗

1 Do Þnancial markets price monetary policy uncertainty? Abstract We study the impact of the uncertainty about the type of monetary policy on stock returns. We derive a model where we explicitly link fundamental uncertainty and uncertainty about the type of monetary policy and generate testable implications of their relative impacts on asset prices. We argue that investors' learning about the stance of the monetary policy induces uncertainty that is reßected in asset premia. We show that inßation, by providing the investors with an opportunity to study the central banker's reaction, may help to reduce this uncertainty and, therefore, risk premia. We show that properly accounting for the uncertainty generated by investor's process of learning the stance of monetary policy helps to address the issue of the negative relationship between inßation and stock returns (" Fisher puzzle ").