Discussion paper

DP13490 Does Central Bank Tone Move Asset Prices?

This paper shows that changes in the tone of central bank communication have a significant effect on asset prices. Tone captures how the central bank frames economic fundamentals and its monetary policy. When tone becomes more positive, stock prices increase, and more so for stocks with high systematic risk, whereas credit spreads and volatility risk premia decrease. These tone effects are robust to controlling for fundamentals, policy actions, and other features of central bank communication, which suggests that tone is a generic instrument of monetary policy that can affect risk premia embedded in asset prices.


Schmeling, M and C Wagner (2019), ‘DP13490 Does Central Bank Tone Move Asset Prices?‘, CEPR Discussion Paper No. 13490. CEPR Press, Paris & London. https://cepr.org/publications/dp13490