Central Bank Communication and the Yield Curve

Matteo Leombroni, Andrea Vedolin, Gyuri Venter, Paul Whelan

Research output: Contribution to conferencePaperResearchpeer-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.
Original languageEnglish
Publication date2018
Number of pages51
Publication statusPublished - 2018
EventThe 78th Annual Meeting of American Finance Association. AFA 2018 - Philadelphia, United States
Duration: 5 Jan 20187 Jan 2018
Conference number: 78


ConferenceThe 78th Annual Meeting of American Finance Association. AFA 2018
Country/TerritoryUnited States
Internet address


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

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