Uncertainty about Federal Reserve Policy and Its Transmission to Emerging Economies: Evidence from Twitter

Peter Tillman
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Peter Tillman: Asian Development Bank Institute

No 592, ADBI Working Papers from Asian Development Bank Institute

Abstract: It is well known that a tightening or easing of the United States’ monetary policy affects financial markets in emerging economies. This paper argues that uncertainty about future monetary policy is a separate transmission channel. We focus on the taper tantrum episode in 2013, a period with an elevated uncertainty about monetary policy, and use a data set that contains 90,000 Twitter messages (“tweets”) on Federal Reserve tapering. Based on this data set, we construct a new index about monetary policy uncertainty using a list of uncertainty keywords. An advantage of this index is that it reflects uncertainty about a specific policy decision. An estimated vector autoregression (VAR) shows that uncertainty shocks lead to a fall in asset prices and a depreciation of local currencies. We also discuss the policy implications of this uncertainty channel of monetary policy transmission.

Keywords: federal Reserve policy; monetary policy; monetary policy transmission; policy uncertainty; taper tantrum; uncertainty; uncertainty shocks; emerging economies; twitter (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-10-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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