Central bank communication and the yield curve

Matteo Leombroni, Andrea Vedolin, Gyuri Venter and Paul Whelan

Journal of Financial Economics, 2021, vol. 141, issue 3, 860-880

Abstract: In this paper, we argue that monetary policy in the form of central bank communication can shape long-term interest rates by changing risk premia. Using high-frequency movements of default-free rates and equity, we show that monetary policy communications by the European Central Bank on regular announcement days led to a significant yield spread between peripheral and core countries during the European sovereign debt crisis by increasing credit risk premia. We also show that central bank communication has a powerful impact on the yield curve outside regular monetary policy days. We interpret these findings through the lens of a model linking information embedded in central bank communication to sovereign yields.

Keywords: Interest rates; Monetary policy; Central bank communication; Eurozone (search for similar items in EconPapers)
JEL-codes: E43 E58 G12 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:141:y:2021:i:3:p:860-880

DOI: 10.1016/j.jfineco.2021.04.036

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