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.
Originalsprog | Engelsk |
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Tidsskrift | Journal of Financial Economics |
Vol/bind | 141 |
Udgave nummer | 3 |
Sider (fra-til) | 860-880 |
Antal sider | 21 |
ISSN | 0304-405X |
DOI | |
Status | Udgivet - sep. 2021 |
Bibliografisk note
Published online 5 May 2021.Emneord
- Interest rates
- Monetary policy
- Central bank communication
- Eurozone