Central Bank Communication and the Yield Curve

63 Pages Posted: 11 Jun 2018

See all articles by Matteo Leombroni

Matteo Leombroni

Stanford University

Andrea Vedolin

Boston University - Department of Finance & Economics

Gyuri Venter

Copenhagen Business School

Paul Whelan

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 2018

Abstract

Using the institutional features of ECB monetary policy announcements, we provide direct evidence for the risk premium channel of central bank communication. We show that on days when the ECB announces its monetary policy almost all of the variation of bond yields is driven by communication. Moreover, while the effect of monetary policy is homogeneous across countries before the European debt crisis, we document dramatic differences post crisis and show that communication shocks drive a wedge between peripheral and core yields. We empirically link the periphery-core wedge to break-up and credit risk premia, and study this channel theoretically through the lens of an equilibrium model in which central bank communication reveals information about the state of the economy.

Keywords: central bank communication, Eurozone, interest rates, monetary policy, risk premia

JEL Classification: E42, E58, G12

Suggested Citation

Leombroni, Matteo and Vedolin, Andrea and Venter, Gyuri and Whelan, Paul, Central Bank Communication and the Yield Curve (June 2018). CEPR Discussion Paper No. DP12970. Available at SSRN: https://ssrn.com/abstract=3193932

Matteo Leombroni (Contact Author)

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

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg, 2000
Denmark

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

Paul Whelan

Copenhagen Business School ( email )

Copenhagen Business School
Finance Department
Copenhagen, DC 1854
Denmark

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