Maik Schmeling, Christian Wagner, 22 February 2019

According to Ben Bernanke, “monetary policy is 98% talk and 2% action”.Using data on policy rate announcements and press conferences by the ECB between 1999 and 2017, this column shows that central bank tone affects asset prices, even after controlling for policy actions and economic fundamentals. The results are consistent with the idea that communication tone is a monetary policy tool that allows central banks to affect the risk appetite of market participants and the risk premia they require.

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