Tapering Talk on Twitter and the Transmission to Emerging Economies

Peter Tillmann

No GRU_2016_014, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: When in 2013 the Federal Reserve started to discuss unwinding its asset purchases and exiting unconventional monetary policy (”tapering talk”), markets adjusted expectations and asset prices dropped sharply, in particular in emerging markets. In this paper we quantify the effect of the tapering talk on emerging financial markets. We use the entire stream of tapering-related messages sent on Twitter.com, the social media network, to build a series of market participants’ beliefs of an early tapering. This series is then included in a VAR system, in which a tapering belief shock is identified using sign restrictions. We find that the tapering shock has significant effects on emerging financial market and explains almost the entire dynamics of bond prices, stock prices, exchange rates and CDS-spreads during the ”taper tantrum”. The results remain robust if we exclude retweets and control for major policy events.

Keywords: Tapering; unconventional monetary policy; emerging mar- kets; quantitative easing; Twitter (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Pages: 27 pages
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2016_014

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