Central Bank Communication and the Yield Curve

Matteo Leombroni, Andrea Vedolin, Gyuri Venter, Paul Whelan

Research output: Working paperResearch

Abstract

Using the institutional features of ECB monetary policy announcements, we provide direct evidence for the risk premium channel of central bank communication. We show that on days when the ECB announces its monetary policy almost all of the variation of bond yields is driven by communication. Moreover, while the effect of monetary policy is homogeneous across countries before the European debt crisis, we document dramatic differences post crisis and show that communication shocks drive a wedge between peripheral and core yields. We empirically link the periphery-core wedge to break-up and credit risk premia, and study this channel theoretically through the lens of an equilibrium model in which central bank communication reveals information about the state of the economy.
Original languageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Number of pages59
Publication statusPublished - Jun 2018
SeriesCentre for Economic Policy Research. Discussion Papers
NumberDP12970
ISSN0265-8003

Keywords

  • Interest rates
  • Monetary policy
  • Central bank communication
  • Risk premia
  • Eurozone

Cite this

Leombroni, M., Vedolin, A., Venter, G., & Whelan, P. (2018). Central Bank Communication and the Yield Curve. London: Centre for Economic Policy Research. Centre for Economic Policy Research. Discussion Papers, No. DP12970
Leombroni, Matteo ; Vedolin, Andrea ; Venter, Gyuri ; Whelan, Paul. / Central Bank Communication and the Yield Curve. London : Centre for Economic Policy Research, 2018. (Centre for Economic Policy Research. Discussion Papers; No. DP12970).
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Leombroni, M, Vedolin, A, Venter, G & Whelan, P 2018 'Central Bank Communication and the Yield Curve' Centre for Economic Policy Research, London.

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

London : Centre for Economic Policy Research, 2018.

Research output: Working paperResearch

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Leombroni M, Vedolin A, Venter G, Whelan P. Central Bank Communication and the Yield Curve. London: Centre for Economic Policy Research. 2018 Jun.