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

Francesco Bianchi, Thilo Kind, Howard Kung

NBER Working Paper No. 26308
Issued in September 2019, Revised in January 2020
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. We use tick-by-tick fed funds futures data and a collection of Trump tweets criticizing the conduct of monetary policy and consistently advocating that the Fed lower interest rates. Identification exploits a short time window around the precise timestamp for each tweet. The average effect on the expected fed funds rate is negative and statistically significant, with an average cumulative effect of around -10 bps and a peak of -18.5 bps at the longest horizon. We conclude that market participants do not perceive the Fed as fully independent.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w26308