Threats to Central Bank Independence: High-Frequency Evidence with Twitter

35 Pages Posted: 24 Sep 2019

See all articles by Francesco Bianchi

Francesco Bianchi

Duke University

Thilo Kind

London Business School

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: September 15, 2019

Abstract

This paper presents market-based evidence that President Trump influences expectations about monetary policy. The main estimates use tick-by-tick fed funds futures data and a large collection of Trump tweets criticizing the conduct of monetary policy. These collected tweets consistently advocate that the Fed lowers interest rates. Identification in our high-frequency event study exploits a small time window around the precise time stamp for each tweet. The average effect of these tweets on the expected fed funds rate is strongly statistically significant and negative, with a cumulative effect of around negative 10 bps. Therefore, we provide evidence that market participants believe that the Fed will succumb to the political pressure, which poses a significant threat to central bank independence.

Keywords: Central bank independence, monetary policy, fed funds target, high-frequency identification, twitter

JEL Classification: E30, E40, E50

Suggested Citation

Bianchi, Francesco and Kind, Thilo and Kung, Howard, Threats to Central Bank Independence: High-Frequency Evidence with Twitter (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3454246 or http://dx.doi.org/10.2139/ssrn.3454246

Francesco Bianchi

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Thilo Kind

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Howard Kung (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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