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Central bank communication and the yield curve
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Leombroni, Matteo, Vedolin, Andrea, Venter, Gyuri and Whelan, Paul (2021) Central bank communication and the yield curve. Journal of Financial Economics, 141 (3). pp. 860-880. doi:10.1016/j.jfineco.2021.04.036 ISSN 0304-405X.
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Official URL: https://doi.org/10.1016/j.jfineco.2021.04.036
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.
Item Type: | Journal Article | ||||||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Banks and banking, Central -- European Union countries, Business communication, Monetary policy -- European Union countries, Interest rates, Macroeconomics -- Mathematical models, Economic indicators -- Mathematical models | ||||||||||||
Journal or Publication Title: | Journal of Financial Economics | ||||||||||||
Publisher: | Elsevier Science BV | ||||||||||||
ISSN: | 0304-405X | ||||||||||||
Official Date: | September 2021 | ||||||||||||
Dates: |
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Volume: | 141 | ||||||||||||
Number: | 3 | ||||||||||||
Page Range: | pp. 860-880 | ||||||||||||
DOI: | 10.1016/j.jfineco.2021.04.036 | ||||||||||||
Status: | Peer Reviewed | ||||||||||||
Publication Status: | Published | ||||||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||||||
Date of first compliant deposit: | 23 June 2020 | ||||||||||||
Date of first compliant Open Access: | 5 November 2022 | ||||||||||||
RIOXX Funder/Project Grant: |
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