Fed Communication, News, Twitter, and Echo Chambers

60 Pages Posted: 25 May 2023 Last revised: 29 May 2023

See all articles by Bennett Schmanski

Bennett Schmanski

Board of Governors of the Federal Reserve System

Chiara Scotti

Board of Governors of the Federal Reserve System; Federal Reserve Banks - Federal Reserve Bank of Dallas

Clara Vega

Board of Governors of the Federal Reserve System

Hedi Benamar

Abu Dhabi Investment Authority

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2023

Abstract

We estimate monetary policy surprises (sentiment) from the perspective of three different textual sources: direct central bank communication (FOMC statements and press conferences), news articles, and Twitter posts during FOMC announcement days. Textual sentiment across sources is highly correlated, but there are times when news and Twitter sentiment substantially disagree with the sentiment conveyed by the central bank. We find that sentiment estimated using news articles correlates better with daily U.S. Treasury yield changes than the sentiment extracted directly from Fed communication, and better predicts revisions in economic forecasts and FOMC decisions. Twitter sentiment is also useful, but slightly less so than news sentiment. These results suggest that news coverage and Tweets are not a simple echo chamber but they provide additional useful information. We use Sastry (2022)'s theoretical model to guide our empirical analysis and test three mechanisms that can explain what drives monetary policy surprises extracted from different sources: asymmetric information (central bank has better information than journalists and Tweeters), journalists (and Tweeters) have erroneous beliefs about the monetary policy rule, and the central bank and journalists (Tweeters) have different confidence in public information. Our empirical results suggest that the latter mechanism is the most likely mechanism.

Keywords: Monetary policy, public information, price discovery, Twitter, news

JEL Classification: C53, D83, E27, E37, E44, E47, E5, G1

Suggested Citation

Schmanski, Bennett and Scotti, Chiara and Vega, Clara and Benamar, Hedi, Fed Communication, News, Twitter, and Echo Chambers (May 24, 2023). Available at SSRN: https://ssrn.com/abstract=4458545 or http://dx.doi.org/10.2139/ssrn.4458545

Bennett Schmanski

Board of Governors of the Federal Reserve System ( email )

Chiara Scotti

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Clara Vega (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

Hedi Benamar

Abu Dhabi Investment Authority ( email )

Abu Dhabi
United Arab Emirates

HOME PAGE: http://www.hedibenamar.net

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
132
Abstract Views
722
Rank
275,841
PlumX Metrics