Journal of Financial Economics Vol. 141 No. 3 2021
Central bank communication and the yield curve
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.
- DOI
- 10.1016/j.jfineco.2021.04.036
- Volume
- 141
- Issue
- 3
- Pages
- 860-880
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref