Monetary Policy and Financial Markets: Evidence From Twitter Traffic

40 Pages Posted: 12 Apr 2021 Last revised: 1 Apr 2022

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics (ECO); Bocconi University - Department of Economics

Davide Romelli

Trinity College (Dublin) - Department of Economics; Trinity College (Dublin)

Gaia Rubera

Bocconi University

Date Written: March 25, 2022

Abstract

The monetary policy announcements of three major central banks: the European Central Bank, the US Federal Reserve and the Bank of England trigger significant discussions about monetary policy on Twitter. Using machine learning techniques we identify Twitter messages related to monetary policy around the release of policy decisions and build an hourly measure of similarity between tweets on monetary policy and the transcripts of announcements. We show that large changes in the similarity between tweets and central bank communication around the time of the announcement correspond to spikes in stock market volatility and jumps in sovereign yields. These findings suggest that social media discussions on central bank communication are a good proxy for monetary policy surprises.

Keywords: monetary policy, central bank communication, financial markets, social media, Twitter, US Federal Reserve, European Central Bank, Bank of England

JEL Classification: E44, E52, E58, G14, G15, G41

Suggested Citation

Masciandaro, Donato and Masciandaro, Donato and Romelli, Davide and Rubera, Gaia, Monetary Policy and Financial Markets: Evidence From Twitter Traffic (March 25, 2022). BAFFI CAREFIN Centre Research Paper No. 2021-160, Available at SSRN: https://ssrn.com/abstract=3823185 or http://dx.doi.org/10.2139/ssrn.3823185

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics (ECO) ( email )

Via G. Roentgen 1 - 5E211
20136 Milan
Italy

Bocconi University - Department of Economics ( email )

Via G. Roentgen 1 - 5E211
20136 Milan
Italy

Davide Romelli

Trinity College (Dublin) - Department of Economics ( email )

Arts Building
Room 3014
Dublin
Ireland

Trinity College (Dublin) ( email )

2-3 College Green
Dublin, Leinster D2
Ireland

Gaia Rubera

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
275
Abstract Views
1,288
rank
152,056
PlumX Metrics