Central Bank Communication and the Yield Curve

85 Pages Posted: 22 Nov 2016 Last revised: 15 Jun 2020

See all articles by Matteo Leombroni

Matteo Leombroni

Stanford University

Andrea Vedolin

Boston University - Department of Finance & Economics

Gyuri Venter

Warwick Business School

Paul Whelan

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2020


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 signi cant 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, risk premia, Eurozone

JEL Classification: E43, E58, G12

Suggested Citation

Leombroni, Matteo and Vedolin, Andrea and Venter, Gyuri and Whelan, Paul, Central Bank Communication and the Yield Curve (June 9, 2020). Available at SSRN: https://ssrn.com/abstract=2873091 or http://dx.doi.org/10.2139/ssrn.2873091

Matteo Leombroni

Stanford University ( email )

Stanford, CA 94305
United States

Andrea Vedolin

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Gyuri Venter (Contact Author)

Warwick Business School ( email )

University of Warwick, Gibbet Hill Road
Coventry, CV4 7AL
United Kingdom

HOME PAGE: http://sites.google.com/site/gyuriventer/

Paul Whelan

Copenhagen Business School ( email )

Copenhagen Business School
Finance Department
Copenhagen, DC 1854

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