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Monetary policy and financial markets: evidence from Twitter traffic

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  • Donato Masciandaro
  • Davide Romelli
  • Gaia Rubera

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.

Suggested Citation

  • Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy and financial markets: evidence from Twitter traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:baf:cbafwp:cbafwp21160
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    Cited by:

    1. Ehrmann, Michael & Wabitsch, Alena, 2022. "Central bank communication with non-experts – A road to nowhere?," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 69-85.
    2. Christian P Pinshi, 2022. "Ciblage des prévisions d'inflation : Un nouveau cadre pour la politique monétaire ?," Working Papers hal-03548273, HAL.
    3. PINSHI, Christian P., 2022. "Inflation-Forecast Targeting: A New Framework for Monetary Policy?," MPRA Paper 111709, University Library of Munich, Germany.
    4. Beckmann, Joscha & Czudaj, Robert L., 2023. "Perceived monetary policy uncertainty," Journal of International Money and Finance, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    monetary policy; central bank communication; financial markets; social media; Twitter; US Federal Reserve; European Central Bank; Bank of England;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

    NEP fields

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