“Loose lips sinking markets?": the impact of political communication on sovereign bond spreads

Bericht

Taking a cue from the assertion that “loose lips sink markets” (Carmassi and Micossi, 2010), this paper investigates to what extent and why political communication has had an impact on the sovereign bond spreads of selected euro area countries over the German Bund. Drawing on 25,000 news media releases between January 2009 and October 2011, it empirically compares political communication across various political actors at the supranational and national levels in the euro area. It finds empirical evidence that, in the short term, certain types of political communication have a quantifiable effect on sovereign bond spreads. This effect can be positive or negative depending on the type of communication, possibly fueling self-reinforcing feedback loops between markets and policy actions. Subsequently, this paper explores possible reasons for this observed phenomenon. It analyses the specific economic, political and institutional context in which political communication works in Europe and finds that the potential for miscommunication is structurally higher in the euro area than in other nation-based currency areas. Finally, the paper identifies avenues to make communication policy more effective and puts forward possible measures to mitigate the risks of miscommunication.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Occasional Paper ; No. 150

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: political communication ; Public finances ; sovereign bond spreads ; sovereign debt crisis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gade, Thomas ; Salines, Marion ; Glöckler, Gabriel ; Strodthoff, Steffen
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/154603
• Last update: 24.03.0003, 9:30 AM CET