Central Bank Communication and the Yield Curve

Matteo Leombroni, Andrea Vedolin, Gyuri Venter, Paul Whelan

Publikation: KonferencebidragPaperForskningpeer review


We decompose ECB monetary policy surprises into target and communication shocks and document a number of novel findings. First, consistent with the idea that concurrent implementation of monetary policy is largely anticipated, we find that target shocks only have a limited effect on yields. However, we show that communication shocks have a large and economically significant impact on swap rates and sovereign yields, displaying a hump-shaped pattern across maturity. Second, we document that around the European debt crisis communication had the effect of driving a wedge between yields on core versus peripheral countries. We study two explanations for this finding, revelation of the ECB's private information and credit risk, and argue that neither channel can explain the effect on yield spreads. Motivated by this, we consider an alternative explanation in which central bank communication can induce demand shocks for bonds due to the presence of reaching-for-yield investors. We show that a resulting risk premium channel helps to rationalize our findings.
Antal sider56
StatusUdgivet - 2017
BegivenhedThe 15th International Paris December Finance Meeting - Novotel Paris les Halles hotel, Paris, Frankrig
Varighed: 21 dec. 201721 dec. 2017
Konferencens nummer: 15


KonferenceThe 15th International Paris December Finance Meeting
LokationNovotel Paris les Halles hotel


  • Interest rates
  • Home bias
  • Monetary policy
  • Sovereign bonds
  • Reaching for yield