Do words matter? The impact of communication on the PIIGS' CDS and bond yield spreads during Europe's sovereign debt crisis

•The impact of communication by eurozone officials during the debt crisis is studied.•Statements by ECB members, EU officials, and national representatives are covered.•Comments by German, French, EU, and ECB representatives are found to impact spreads.•No effects are found for statements by representatives of the small EMU-countries.

The paper aims to shed light on the role of communication in the European debt crisis. It examines the effects of public statements by ECB Governing Council members, EU officials and national representatives on the PIIGS' CDS and bond yield spreads. The focus lies on dovish statements that signal strong determination in the rescue of indebted countries, and hawkish statements that indicate limited commitment to support the PIIGS and protect its creditors. The analysis of daily data for the period between January 1, 2009 and August 12, 2011 in an EGARCH framework suggests that communication by representatives of Germany, France, and the EU as well as ECB Governing Council members had an immediate impact on both types of securities. No effects are found for communication by representatives of the smaller eurozone member countries.