Tariffs and the Exchange Rate: Evidence from Twitter

Dmitry Matveev and Francisco Ruge-Murcia

IMF Economic Review, 2024, vol. 72, issue 3, No 8, 1185-1211

Abstract: Abstract This paper examines the conjecture that an increase in tariffs in a flexible exchange rate regime leads to the appreciation of the local currency. We focus on the reaction of the exchange rate market to tweets by U.S. President Donald Trump regarding possible tariff increases on Canadian and Mexican goods. The anticipation of trade restrictions leads to the appreciation of the U.S. dollar by 2.6 bps and 4.6 bps vis-à-vis the Canadian dollar and Mexican peso, respectively, within five minutes of the tweet, and the effect is statistically significant for up to 3 days after the tweet. These results suggest that the view that exchange rate appreciation may mitigate expenditure-switching toward local goods after a tariff increase is empirically plausible.

Keywords: NAFTA; Commercial policy; Government communication; Expenditure-switching; High-frequency identification; Social media (search for similar items in EconPapers)
JEL-codes: F13 F31 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Tariffs and the Exchange Rate: Evidence from Twitter (2021)
Working Paper: Tariffs and the Exchange Rate: Evidence from Twitter (2020)
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DOI: 10.1057/s41308-023-00206-x

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