Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144677
Authors: 
Lüdering, Jochen
Tillmann, Peter
Year of Publication: 
2016
Series/Report no.: 
Joint Discussion Paper Series in Economics 12-2016
Abstract: 
In this paper we dissect the public debate about the future course of monetary policy and trace the effects of selected topics of this discourse on U.S. asset prices. We focus on the "taper tantrum" episode in 2013, a period with large revisions in expectations about Fed policy. Based on a novel data set of 90,000 Twitter messages ("tweets") covering the entire debate of Fed tapering on Twitter we use Latent Dirichlet Allocation, a computational text analysis tool to quantify the content of the discussion. Several estimated topic frequencies are then included in a VAR model to estimate the effects of topic shocks on asset prices. We find that the discussion about Fed policy on social media contains price-relevant information. Shocks to shares of "tantrum"-, "QE"- and "data"-related topics are shown to lead to significant asset price changes. We also show that the effects are mostly due to changes in the term premium of yields consistent with the portfolio balance channel of unconventional monetary policy.
Subjects: 
Monetary Policy
Fed
Latent Dirichlet Allocation
Text Analysis
VAR
JEL: 
E32
E44
E52
Document Type: 
Working Paper

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