Emotion in Euro Area Monetary Policy Communication and Bond Yields: The Draghi Era

We combine modern methods from Speech Emotion Recognition and Natural Language Processing with high-frequency financial data to precisely analyze how the vocal emotions and language of ECB President Mario Draghi affect the yields and yield spreads of major euro area economies. This novel approach to central bank communication reveals that vocal and verbal emotions significantly impact the yield curve, with effects varying in magnitude and direction. Our results reveal an important asymmetry in yield changes with positive signals raising German, French, and Spanish yields, while negative cues increase Italian yields. Our analysis of bond spreads and equity markets indicates that positive communication influences the risk-free yield component, whereas negative communication affects the risk premium. Additionally, our study contributes by constructing a synchronized dataset for voice and language analysis.