Information Acquisition ahead of Monetary Policy Announcements

Department d'Economie et Sciences de la Décision  
Intervenant : Paul Hubert
Salle : T-008

Abstract:

This paper investigates how central bank watchers acquire information about upcoming monetary policy decisions in the absence of central bank signals. It hypothesises that they can benefit from sharing information among each other, leading to improved market expectations. To test this hypothesis, the paper studies monetary policy-related content on Twitter in the uprun to the Governing Council meetings of the European Central Bank, when policy makers refrain from public statements related to monetary policy. Twitter traffic during this “quiet period” correlates positively with the magnitude of subsequent monetary surprises, an effect triggered by increased attention to meetings where changes to monetary policy are expected. In line with the stated hypothesis, the paper finds that the exchange of views on Twitter is associated with smaller effects of disagreement about the economic outlook on the predictability of monetary policy decisions. In contrast, the effects of uncertainty are not related to Twitter exchanges. These findings suggest that by exchanging views, agents can come to more accurate expectations about upcoming monetary policy decisions even in the absence of signals from the central bank.