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

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  • Baumgärtner, Martin
  • Zahner, Johannes

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.

Suggested Citation

  • Baumgärtner, Martin & Zahner, Johannes, 2024. "Talking fragmentation away – Decoding the ’whatever it takes’ effect," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523005104
    DOI: 10.1016/j.econlet.2023.111484
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    References listed on IDEAS

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    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
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    4. Altavilla, Carlo & Brugnolini, Luca & Gürkaynak, Refet S. & Motto, Roberto & Ragusa, Giuseppe, 2019. "Measuring euro area monetary policy," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 162-179.
    5. Michael Stiefel & Rémi Vivès, 2022. "Correction to: ‘Whatever it takes’ to change belief: evidence from Twitter," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(3), pages 749-749, August.
    6. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    7. Martin Baumgaertner & Johannes Zahner, 2021. "Whatever it takes to understand a central banker - Embedding their words using neural networks," MAGKS Papers on Economics 202130, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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    11. Michael Stiefel & Rémi Vivès, 2022. "‘Whatever it takes’ to change belief: evidence from Twitter," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(3), pages 715-747, August.
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    More about this item

    Keywords

    Natural language processing; Embedding; Central bank communication; Transfer learning; Fragmentation; Financial stability;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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