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Central Bank Communication and Financial Market Comovements in the Euro Area

Author

Listed:
  • Pavel Gertler

    (National Bank of Slovakia)

  • Roman Horváth

    (Charles University
    University of Ss. Cyril and Methodius in Trnava)

  • Júlia Jonášová

    (Charles University)

Abstract

We examine whether unscheduled communication of members of the European Central Bank’s (ECB) Governing Council affects financial market comovements. To assess comovements, we employ well-defined measures of stock market and government bond yield coexceedances, i.e., the measures of whether markets jointly decrease or increase and by how much. We use the daily data from 2008 to 2014 for the four largest euro area countries, Germany, France, Italy and Spain, in a quantile regression framework and control for persistence in coexceedances and a comprehensive set of relevant factors capturing returns and volatility in various segments of financial markets. We find that central bank communication often contributes to greater coexceedances but only when there are extreme events in the financial markets. The results also suggest that markets perceive the ECB’s communication as a euro area-wide shock, but propagation of this shock depends on the financial (in)stability of individual euro area countries.

Suggested Citation

  • Pavel Gertler & Roman Horváth & Júlia Jonášová, 2020. "Central Bank Communication and Financial Market Comovements in the Euro Area," Open Economies Review, Springer, vol. 31(2), pages 257-272, April.
    • Handle: RePEc:kap:openec:v:31:y:2020:i:2:d:10.1007_s11079-019-09561-7
    DOI: 10.1007/s11079-019-09561-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Central bank communication; Financial market comovements; Quantile regression;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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