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Tapering Talk on Twitter and the Transmission to Emerging Economies

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  • Peter Tillmann

    (Justus Liebig University Giessen)

Abstract

When in 2013 the Federal Reserve started to discuss unwinding its asset purchases and exiting unconventional monetary policy (”tapering talk”), markets adjusted expectations and asset prices dropped sharply, in particular in emerging markets. In this paper we quantify the effect of the tapering talk on emerging financial markets. We use the entire stream of tapering-related messages sent on Twitter.com, the social media network, to build a series of market participants’ beliefs of an early tapering. This series is then included in a VAR system, in which a tapering belief shock is identified using sign restrictions. We find that the tapering shock has significant effects on emerging financial market and explains almost the entire dynamics of bond prices, stock prices, exchange rates and CDS-spreads during the ”taper tantrum”. The results remain robust if we exclude retweets and control for major policy events.

Suggested Citation

  • Peter Tillmann, "undated". "Tapering Talk on Twitter and the Transmission to Emerging Economies," GRU Working Paper Series GRU_2016_014, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2016_014
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    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232016-014%20_PeterTill.pdf
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    More about this item

    Keywords

    Tapering; unconventional monetary policy; emerging mar- kets; quantitative easing; Twitter;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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