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

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  • Liu, Yifan
  • Popova, Ivilina

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.

Suggested Citation

  • Liu, Yifan & Popova, Ivilina, 2023. "Threats to central bank independence and exchange rate volatility: High-frequency identification with Trump’s Fed tweets," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612323000156
    DOI: 10.1016/j.frl.2023.103641
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    Cited by:

    1. Agrrawal, Pankaj & Agarwal, Rajat, 2023. "A Longer-Term evaluation of Information releases by Influential market Agents and the Semi-strong market Efficiency," EconStor Preprints 273555, ZBW - Leibniz Information Centre for Economics.
    2. Zhou, Wen, 2023. "Did Donald Trump's tweets on Sino–U.S. Trade affect the offshore RMB exchange rate?," Finance Research Letters, Elsevier, vol. 58(PA).

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    More about this item

    Keywords

    Central bank independence; Exchange rate volatility; High-frequency identification; Trump; Twitter; Social media;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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