Title: Deciphering Monetary Policy Shocks
(The paper is a joint work with Phillipp Gnan (WU), Maximilian Schleritzko (VGSF) and Maik Schmeling (Goethe University Frankfurt; CEPR)).
Abstract: "We decipher monetary policy shocks by showing that asset price reactions to policy announcements can be directly connected to the verbal communication of the central bank. For the European Central Bank (ECB), we document that asset prices and measures of structural monetary policy shocks respond to news about ‘rate guidance’, ‘economic activity’, ‘inflation’, ‘fiscal policy’, or ‘financial and monetary conditions’, which the ECB reveals in its press conferences. The responses of asset prices to topic-specific news are economically intuitive, however, there is no simple mapping between economic drivers and market prices. There is substantial time-variation in the impact of different topic-news for the prices of different assets, which suggests that central bank communication can be used as an effective tool that is flexible to accommodate changes in informational needs."