Monetary policy and financial markets: evidence from Twitter traffic

Donato Masciandaro (), Davide Romelli and Gaia Rubera

No 21160, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

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.

Keywords: monetary policy; central bank communication; financial markets; social media; Twitter; US Federal Reserve; European Central Bank; Bank of England (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G14 G15 G41 (search for similar items in EconPapers)
Pages: 40
Date: 2021
New Economics Papers: this item is included in nep-big, nep-cmp, nep-cwa, nep-his, nep-ifn, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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