Central Bank Communication and the Yield Curve

Matteo Leombroni, Andrea Vedolin, Gyuri Venter, Paul Whelan

Publikation: KonferencebidragPaperForskningpeer review

Resumé

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.
OriginalsprogEngelsk
Publikationsdato2018
Antal sider51
StatusUdgivet - 2018
BegivenhedThe 78th Annual Meeting of American Finance Association. AFA 2018 - Philadelphia, USA
Varighed: 5 jan. 20187 jan. 2018
Konferencens nummer: 78
https://editorialexpress.com/conference/AFA2018/program/AFA2018.html

Konference

KonferenceThe 78th Annual Meeting of American Finance Association. AFA 2018
Nummer78
LandUSA
ByPhiladelphia
Periode05/01/201807/01/2018
Internetadresse

Emneord

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

Citer dette

Leombroni, M., Vedolin, A., Venter, G., & Whelan, P. (2018). Central Bank Communication and the Yield Curve. Afhandling præsenteret på The 78th Annual Meeting of American Finance Association. AFA 2018, Philadelphia, USA.
Leombroni, Matteo ; Vedolin, Andrea ; Venter, Gyuri ; Whelan, Paul. / Central Bank Communication and the Yield Curve. Afhandling præsenteret på The 78th Annual Meeting of American Finance Association. AFA 2018, Philadelphia, USA.51 s.
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Leombroni, M, Vedolin, A, Venter, G & Whelan, P 2018, 'Central Bank Communication and the Yield Curve' Paper fremlagt ved The 78th Annual Meeting of American Finance Association. AFA 2018, Philadelphia, USA, 05/01/2018 - 07/01/2018, .

Central Bank Communication and the Yield Curve. / Leombroni, Matteo; Vedolin, Andrea; Venter, Gyuri; Whelan, Paul.

2018. Afhandling præsenteret på The 78th Annual Meeting of American Finance Association. AFA 2018, Philadelphia, USA.

Publikation: KonferencebidragPaperForskningpeer review

TY - CONF

T1 - Central Bank Communication and the Yield Curve

AU - Leombroni, Matteo

AU - Vedolin, Andrea

AU - Venter, Gyuri

AU - Whelan, Paul

PY - 2018

Y1 - 2018

N2 - 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 whichcentral 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.

AB - 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 whichcentral 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.

KW - Interest rates

KW - Monetary policy

KW - Sovereign bonds

KW - Reaching for yield

KW - Interest rates

KW - Monetary policy

KW - Sovereign bonds

KW - Reaching for yield

M3 - Paper

ER -

Leombroni M, Vedolin A, Venter G, Whelan P. Central Bank Communication and the Yield Curve. 2018. Afhandling præsenteret på The 78th Annual Meeting of American Finance Association. AFA 2018, Philadelphia, USA.