Decentralized Finance and Central Bank Communication

Author: Magnus Hansson; Göteborgs Universitet; Göteborgs Universitet; Gothenburg University; []

Keywords: Decentralized Finance; Decentralized Exchanges; Constant Product Markets; Arbitrage; Ethereum Blockchain; Automated Market Makers; Price Discovery; Market Microstructure; Maximal Extractable Value; Central Bank Communication; Textual Analysis; Narrative Economics;

Abstract: This dissertation investigates two distinct areas within the financial literature: Decentralized finance (DeFi) and central bank communication. Both areas have experienced significant changes in the past decade, posing new challenges to the international financial system. The dissertation comprises three self-contained chapters, each exploring a different aspect of these developments. The first two chapters delve into the realm of DeFi, focusing on price discovery on decentralized exchanges that employ blockchain technology for trade settlement. These papers highlight the crucial role of arbitrageurs in maintaining price efficiency in these markets. The third paper shifts its attention to central bank communication. It employs natural language processing to study the content of central bank speeches, relating its findings to the theory of narrative economics.

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