Working Paper: CEPR ID: DP14021
Authors: Francesco Bianchi; Thilo Kind; Howard Kung
Abstract: We use a high-frequency approach to analyze the effects of President Trump’s tweets that criticize the Federal Reserve on financial markets. 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 the magnitude growing by horizon. The tweets also lead to an increase in the stock market, breakeven inflation, and spreads linked to the risk of financial instability. VAR evidence shows that the tweets had an important impact on actual monetary policy, the stock market, bond premia, and the macroeconomy.
Keywords: Central Bank Independence; Monetary Policy; Twitter; Fed Funds Target; High-Frequency Identification
JEL Codes: E40; E50; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trump's tweets criticizing the Federal Reserve (E52) | decrease in expected federal funds rate (FFR) (E52) |
| Trump's tweets criticizing the Federal Reserve (E52) | increase in stock market breakeven inflation (E31) |
| Trump's tweets criticizing the Federal Reserve (E52) | increase in spreads linked to financial instability (F65) |
| Trump's tweets criticizing the Federal Reserve (E52) | significant impact on actual monetary policy (E52) |
| decrease in expected federal funds rate (FFR) (E52) | lower interest rates (E43) |
| Trump's tweets criticizing the Federal Reserve (E52) | perceived erosion of Fed's autonomy (E58) |