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

51 Pages Posted: 7 Oct 2019 Last revised: 13 Jan 2020

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)

Multiple version iconThere are 2 versions of this paper

Date Written: September 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 an average cumulative effect of around -10 bps with a peak of -18.5 bps at the longest horizon. Therefore, we provide evidence that market participants do not perceive the Fed as a fully independent institution.

Keywords: central bank independence, fed funds target, High-Frequency Identification, monetary policy, Twitter

JEL Classification: D72, E40, E50

Suggested Citation

Bianchi, Francesco and Kind, Thilo and Kung, Howard, Threats to Central Bank Independence: High-Frequency Identification with Twitter (September 2019). CEPR Discussion Paper No. DP14021, Available at SSRN: https://ssrn.com/abstract=3464551

Francesco Bianchi (Contact Author)

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

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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