ECB’s communication and the yield curve: core versus periphery effects

ABSTRACT

This paper shows peculiar reactions of sovereign yields to ECB announcements. The focus on different maturities reveals a diverse reaction within the euro area. While economies with a relatively low solvency rating are affected across the entire yield curve, economies with a relatively high solvency rating react significantly only at short maturities.

KEYWORDS:

• Event study
• non-standard monetary policy
• sovereign yield curve
• ECB communication

JEL CLASSIFICATION:

• E52
• E58
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We restrict to these six economies due to data availability. No reliable time series exist for other countries examined in related literature for the chosen observation period and maturity spectrum. Data on 15 years maturity are only available from 2010 onwards and therefore omitted. Data for 20 years maturity are only available for France, Germany, and the Netherlands.

² Fendel and Neugebauer (2019) restrict the analysis to 10-year maturities only.

³ In line with the results of Fendel and Neugebauer (2019), in our analysis only marginal immediate (i.e. same-day) effects appear directly on announcement days. That is why we only display the delayed effects. Results for the immediate effects are available upon request.

⁴ As a robustness check, we also estimate Eq. (1)(1) $\mathrm{\Delta }{y}_{i,t}^m={\alpha }_i^m+{\beta }_i^m\mathrm{\Delta }{y}_{i,t-1}^m+{\gamma }_i^{m}dAP{A}_t+{\delta }_i^m{X}_t+{\epsilon }_{i,t},$(1) using the random effects estimator for a fixed maturity pooling of the data in the country dimension. The results are qualitatively the same and are available upon request.

⁵ As Belgium lies somehow in between the peripheral and core country group in Figure 1, an alternative specification (4 core versus 2 periphery countries) assigns Belgium to the core countries instead. The results do not qualitatively change so that we confidently maintain the present balanced grouping (3 core versus 3 periphery countries).