Non-technical summary

Research Question

Monetary policy communication can influence financial markets and economic developments. For this reason, central banks have significantly systematized their communication to effectively manage expectations regarding monetary policy. This development has contributed to financial markets increasingly paying attention to more unconventional sources of information. Among these, the voice is particularly noteworthy, as it often provides spontaneous insights and conveys messages that go beyond the spoken word. In this study, we analyze the extent to which the interaction of vocal and verbal signals from Mario Draghi during his press conferences as President of the European Central Bank affected the government bond yields of France, Germany, Italy, and Spain. Furthermore, we examine the background of possible yield differences and the impact on European stock markets.

Contribution

Our approach combines modern methods from speech emotion recognition and natural language processing with high-frequency financial data. This allows us to measure the real-time impact of Mario Draghi’s vocal and verbal signals on the bond yields and spreads of the four major euro area economies. Our focus on verbal and nonverbal communication during the Q&A session represents a novel approach to studying the effects of monetary policy communication on financial markets. Furthermore, we construct a synchronized dataset of spoken words and vocal cues.

Results

The analysis shows that positive vocal and verbal signals from Mario Draghi increase the yields of German, French, and Spanish bonds, while negative signals raise the yields of Italian bonds. The examination of bond spreads suggests that positive communication affects the yields of German, French, and Spanish bonds through changes in expectations about the risk-free rate. In contrast, negative communicative signals lead to adjustments in individual risk premiums. Negative vocal emotions also result in a decline in stock prices. Overall, the findings demonstrate that nonverbal signals from an ECB President have a significant impact on financial markets, with asymmetric reactions to positive and negative signals.