Threats to central bank independence and exchange rate volatility: High-frequency identification with Trump’s Fed tweets

Yifan Liu and Ivilina Popova

Finance Research Letters, 2023, vol. 53, issue C

Abstract: This study presents market-based evidence that threats to central bank independence increase exchange rate volatility. We use Trump’s tweets that criticize the Fed’s monetary policies and advocate lower interest rates as a proxy for threats to central bank independence. We find that intraday exchange rate volatility rises following Trump’s Fed tweets. Moreover, this relation is more pronounced for the tweets with greater market attention and more negative sentiment. Our findings suggest that market participants do not perceive the Federal Reserve as independent from political pressure.

Keywords: Central bank independence; Exchange rate volatility; High-frequency identification; Trump; Twitter; Social media (search for similar items in EconPapers)
JEL-codes: D72 E40 E50 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000156

DOI: 10.1016/j.frl.2023.103641

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