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

The Chinese University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: June 9, 2020

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 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

The Chinese University of Hong Kong ( email )

The Chinese University of Hong Kong
Finance Department
Copenhagen, DC 1854
Hong Kong

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,357
Abstract Views
5,827
Rank
25,570
PlumX Metrics