Talking fragmentation away – Decoding the 'whatever it takes' effect

martin.baumgaertner1@gmail.com (Martin Baumgärtner) — Mon, 01 Jan 2024 00:00:00 +0000

Authors

Martin Baumgärtner, Johannes Zahner

Publication Details

Journal: Economics Letters Volume: 234 Article Number: 111484 Date: January 2024 DOI: 10.1016/j.econlet.2023.111484

Abstract

In 2022, the ECB introduced a new instrument designed to combat fragmentation in euro area government bond yields. To assess the ECB’s effectiveness in addressing fragmentation through existing instruments, particularly communication, we turn to a pivotal historical event – Mario Draghi’s famous “whatever it takes” speech. Widely interpreted as a commitment by the ECB to act as a lender of last resort, this speech eased tensions in bond markets. Employing state-of-the-art computational linguistics, we create an index that quantifies the ECB’s commitment to act as a lender of last resort based on this historic speech. Our index highlights the ECB’s central role in stabilizing financial markets, especially during periods of heightened uncertainty.

Bond Yields on Martin Baumgärtner

Talking fragmentation away – Decoding the 'whatever it takes' effect

Authors

Publication Details

Abstract