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Tariffs and the Exchange Rate : Evidence from Twitter

Author

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  • Dmitry Matveev

    (Bank of Canada)

  • Francisco Ruge-Murcia

    (McGill University)

Abstract

This paper examines Mundell's conjecture that in a flexible exchange rate regime, an increase in tariffs on foreign goods leads to the real appreciation of the local currency or, conversely, to the real depreciation of the foreign currency (Mundell, 1961). We focus on the exchange rate market's reaction to government communication in the form of tweets by the U.S. president that contain information about possible tariff increases on Canadian and Mexican goods. Results show that the anticipation of trade restrictions by the U.S. leads to a 0:022% depreciation in the Canadian dollar, and a 0:049% depreciation in the Mexican peso, with respect to the U.S. dollar.

Suggested Citation

  • Dmitry Matveev & Francisco Ruge-Murcia, 2020. "Tariffs and the Exchange Rate : Evidence from Twitter," Cahiers de recherche 19-2020, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    • Handle: RePEc:mtl:montec:19-2020
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    References listed on IDEAS

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    Cited by:

    1. Jeanne, Olivier & Son, Jeongwon, 2012. "To what extent are tariffs offset by exchange rates?," Economics Working Paper Archive 66656, The Johns Hopkins University,Department of Economics.

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    More about this item

    Keywords

    NAFTA; commercial policy; high-frequency identification;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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