Deciphering Monetary Policy Shocks

78 Pages Posted: 15 Apr 2022 Last revised: 17 Oct 2023

See all articles by Phillipp Gnan

Phillipp Gnan

Vienna University of Economics and Business

Maximilian Schleritzko

Vienna Graduate School of Finance (VGSF)

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Christian Wagner

WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Date Written: September 29, 2023

Abstract

We decipher monetary policy shocks by showing that asset price reactions to policy announcements can be directly connected to the verbal communication of the central bank. For the European Central Bank (ECB), we document that asset prices and measures of structural monetary policy shocks respond to news about 'rate guidance', 'economic activity', 'inflation', 'fiscal policy', or 'financial and monetary conditions', which the ECB reveals in its press conferences. The responses of asset prices to topic-specific news are economically intuitive, however, there is no simple mapping between economic drivers and market prices due to substantial time-variation in which topics markets perceive as relevant.

Keywords: Monetary Policy Shocks, Central Bank Communication, Asset Pricing, Textual Analysis

JEL Classification: G10, G12, E43, E44, E52, E58

Suggested Citation

Gnan, Phillipp and Schleritzko, Maximilian and Schmeling, Maik and Wagner, Christian, Deciphering Monetary Policy Shocks (September 29, 2023). Available at SSRN: https://ssrn.com/abstract=4074113 or http://dx.doi.org/10.2139/ssrn.4074113

Phillipp Gnan

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Maximilian Schleritzko

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Maik Schmeling

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Christian Wagner (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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