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

Francesco Bianchi, Howard Kung, Thilo Kind

NBER Working Paper No. 26308
Issued in September 2019
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, Monetary Economics Program

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 from the President, which poses a significant threat to central bank independence.

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Document Object Identifier (DOI): 10.3386/w26308