Tillman, Pe e
Wo king Pape
Unce ain y abou Fede al Rese e policy and I s
ansmission o eme ging economies: E idence om
Twi e
ADBI Wo king Pape , No. 592
P o ided in Coope a ion wi h:
Asian De elopmen Bank Ins i u e (ADBI), Tokyo
Sugges ed Ci a ion: Tillman, Pe e (2016) : Unce ain y abou Fede al Rese e policy and I s
ansmission o eme ging economies: E idence om Twi e , ADBI Wo king Pape , No. 592, Asian
De elopmen Bank Ins i u e (ADBI), Tokyo
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ADBI Wo king Pape Se ies
Unce ain y abou
Fede al Rese e Policy
and I s T ansmission
o Eme ging Economies:
E idence om Twi e
Pe e Tillman
No. 592
Sep embe 2016
Asian De elopmen Bank Ins i u e
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Tillman, P. 2016. Unce ain y abou Fede al Rese e Policy and I s T ansmission o
Eme ging Economies: E idence om Twi e . ADBI Wo king Pape 592. Tokyo: Asian
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ADBI Wo king Pape 592 P. Tillman
Abs ac
I is well known ha a igh ening o easing o he Uni ed S a es’ mone a y policy a ec s
inancial ma ke s in eme ging economies. This pape a gues ha unce ain y abou u u e
mone a y policy is a sepa a e ansmission channel. We ocus on he ape an um episode
in 2013, a pe iod wi h an ele a ed unce ain y abou mone a y policy, and use a da a se
ha con ains 90,000 Twi e messages (“ wee s”) on Fede al Rese e ape ing. Based on
his da a se , we cons uc a new index abou mone a y policy unce ain y using a lis o
unce ain y keywo ds. An ad an age o his index is ha i e lec s unce ain y abou a
speci ic policy decision. An es ima ed ec o au o eg ession (VAR) shows ha unce ain y
shocks lead o a all in asse p ices and a dep ecia ion o local cu encies. We also discuss
he policy implica ions o his unce ain y channel o mone a y policy ansmission.
JEL Classi ica ion: E32, E44, E52
ADBI Wo king Pape 592 P. Tillman
Con en s
1. In oduc ion .................................................................................................................. 3
2. Measu ing Policy Unce ain y wi h Twi e Da a .......................................................... 4
3. The Empi ical Model .................................................................................................... 8
4. Resul s ........................................................................................................................ 9
4.1 The Responses o Unce ain y Shocks ......................................................... 10
4.2 The Con ibu ion o Unce ain y Shocks ........................................................ 11
4.3 Robus ness ................................................................................................... 11
5. Policy Implica ions ..................................................................................................... 13
6. Conclusions ............................................................................................................... 15
Re e ences ............................................................................................................................ 16
Appendix ............................................................................................................................... 18

ADBI Wo king Pape 592 P. Tillman
1. INTRODUCTION
Tigh ening and easing policy s eps o he Uni ed S a es’ (US) Fede al Rese e (Fed)
a e known o a ec eme ging ma ke economies h ough a ious channels. Typically,
a Fed igh ening leads o a wi hd awal o capi al om eme ging economies, a d op
in asse p ices, and a eal dep ecia ion o local cu encies. These spillo e e ec s
a e o en he subjec o majo conce ns o policymake s in eme ging ma ke
economies. A e he 2007–2009 global inancial c isis, mone a y policy s eps ha e
led o pa icula ly s ong spillo e e ec s. The a ious ounds o Quan i a i e Easing
(QE1, QE2, QE3), he subsequen exi om QE3 (“ ape ing”) and he e en ual li -o
o he Fede al Funds a e om he ze o lowe bound in Decembe 2015 ha e led o
sha p adjus men s in eme ging ma ke s. Announcemen s o u he mone a y easing
led o massi e capi al in lows in o eme ging economies. The e en ual unwinding
o asse pu chases and he p ospec o a li -o e e sed hese lows—wi h all he
pain ul consequences.
These spillo e s o igina e om speci ic mone a y policy decisions. O e he yea s
since he global inancial c isis, a second ype o spillo e s has eme ged: spillo e s
s emming om he unce ain y abou u u e mone a y policy. Unce ain y spillo e s
exis abo e and beyond hose s emming om speci ic policy s eps. I is he unce ain y
abou he likely cou se o mone a y policy ha led in es o s o adjus hei po olios,
hus leading o side e ec s on eme ging ma ke s. This unce ain y channel o
in e na ional policy ansmission has been highligh ed by he inancial p ess. The
Financial Times no only ecen ly i led he abo e-men ioned s a emen , bu also
s a ed ha “Eme ging ma ke s call on Fed o li a es and end unce ain y”
(9 Sep embe 2015) and “Fed cla i y on a es is he ca alys ha unce ain ma ke s
need” (12 Oc obe 2015).
In his pape we quan i y unce ain y spillo e s, wi h a special ocus on Asia, based on
a no el da a se . We ocus on he “ ape an um” episode in 2013, which was igge ed
by Fed chai man Ben Be nanke’s es imony on 22 May 2013. When he e lec ed abou
he possibili y o exi ing Quan i a i e Easing (QE) and s a ing he g adual no maliza ion
o mone a y policy, ma ke s eac ed wi h high unce ain y, a ise in ola ili y, and a
sha p inc ease in US bond yields. I is he s ong ma ke eac ion ha ga e his pe iod
i s name he “ an um” episode. These spillo e e ec s du ing he ape an um we e
pa icula ly se e e o eme ging ma ke economies, which expe ienced s ong
dep ecia ion o domes ic cu encies and a sudden igh ening o mone a y condi ions.
The ape an um pe iod is esembling he ecen deba e abou he i s inc ease o he
Fede al Funds a e a ge a e 9 yea s o nea -ze o policy a es: he ape ing decision
was expec ed o he June o July Fede al Open Ma ke Commi ee (FOMC) mee ing,
hen o Sep embe 2013, and had inally been delayed o ea ly 2014. Bo h he iming
and he delays a e simila o he “li o ” in 2015, causing obse e s o e e o a
eappea ance o he ape an um.
The e is some quan i a i e e idence on ape ing spillo e s. The li e a u e includes
Eicheng een and Gup a (2013); Aizenman, Binici, and Hu chison (2014); Rai and
Suchanek (2014); Sahay e al. (2014); Mish a e al. (2014); and Lim, Mohapa a, and
S ocke (2014). These pape s assess he magni ude o spillo e s and he impo ance
o domes ic mac oeconomic undamen als o he sensi i i y o ape ing- ela ed
spillo e s. They do no , howe e , shed ligh on he unce ain y channel o in e na ional
policy ansmission.
3
ADBI Wo king Pape 592 P. Tillman
The key con ibu ion o his pape is a no el da a se : ou da a se consis s o 90,000
Twi e messages (“ wee s”), which e lec he en i e discussion on he Fed ape ing
be ween Ap il and Oc obe 2013 on Twi e .com. F om his we cons uc an indica o o
unce ain y abou u u e mone a y policy, which we hen eed in o a s anda d ec o
au o eg essi e (VAR) model. We use a comp ehensi e wo d lis om he li e a u e ha
con ains keywo ds ha desc ibe unce ain y and apply his o all ou wee s. This gi es
us an index o unce ain y ha is di ec ed o a e y speci ic mone a y policy decision.
This is an impo an ad an age o e unce ain y indica o s used in he li e a u e, e.g.,
Bake , Bloom, and Da is (2013), which o en e lec a b oad, unspeci ic no ion o
unce ain y. 1 A second ad an age is ha we measu e unce ain y di ec ly om
messages sen , ead, and o wa ded by ma ke pa icipan s. A hi d ad an age is ha
his index is a ailable on a daily equency.2
We ind ha an inc ease o unce ain y abou he iming o he exi om QE leads
o signi ican e ec s on eme ging ma ke economies. Unce ain y leads o a all in
bond and s ock p ices, a dep ecia ion o local cu encies, and an inc ease in c edi
de aul swap (CDS) sp eads. Se e al obus ness checks such as con olling o
he mac oeconomic en i onmen , he in o ma ion coming om FOMC mee ings, and
he numbe o e wee s con i m ou indings. Thus, his pape p o ides e idence o an
unce ain y channel o in e na ional mone a y policy ansmission.
The esul s highligh he need o clea and consis en communica ion o majo policy
decisions o cen al banks in ad anced economies. Majo policy u na ounds such as
he exi om QE should be designed wi h special a en ion o he ulne abili ies o
eme ging economies. This is pa icula ly ele an o , among o he s, he Eu opean
Cen al Bank and he Bank o Japan, which will ha e o communica e he exi om
uncon en ional mone a y policy a some poin in he u u e. Ou esul s also sugges
ha main aining s ong mac oeconomic undamen als in eme ging ma ke s is bes
sui ed o wi hs and unce ain y spillo e s.
The emaining pa s o he pape a e o ganized as ollows. Sec ion 2 in oduces ou
da a se and explains he cons uc ion o he new measu e o unce ain y abou US
mone a y policy. Sec ion 3 explains he empi ical model used o es ima e he e ec s o
unce ain y shocks. Sec ion 4 discusses he de ails and he obus ness o he indings.
A pe spec i e on policy implica ions in Sec ion 5 and a concluding sec ion comple e
he pape .
2. MEASURING POLICY UNCERTAINTY
WITH TWITTER DATA
We use a sample ha cap u es he 2013 ape an um episode and, hence, a pe iod in
which ma ke unce ain y abou u u e US mone a y policy was high and ola ile. I is
also a pe iod wi h a majo shi in expec a ions abou he u u e cou se o US mone a y
policy. To es ima e he e ec s o unce ain y, we need da a (i) ha is a ailable on
a high equency in o de o e lec he high-speed ansmission o in o ma ion on
inancial ma ke s, (ii) ha e lec s unce ain y o ac ual ma ke pa icipan s, no o he
o e all economy, and (iii) ha allow us o isola e he speci ic unce ain y abou
1 Is e i and Piloiu (2013) use he Bake , Bloom, and Da is (2013) index o policy unce ain y o he US,
he Uni ed Kingdom, Ge many, and he eu o a ea o quan i y he esponse o in la ion expec a ions o a
b oadly de ined no ion o unce ain y.
2 The same da a is used in Meinusch and Tillmann (2015) and Tillmann (2015). None o hese pape s,
howe e , is in es iga ing he e ec s o policy unce ain y in he US on eme ging ma ke s‘ asse p ices
and inancial condi ions, espec i ely.
4
ADBI Wo king Pape 592 P. Tillman
mone a y policy om he unce ain y abou o he ields o economic policy. Fo he
la e eason, he commonly used indica o o policy unce ain y om Bake , Bloom,
and Da is (2013) canno be used as i summa izes unce ain y on a wide ange o
policy a eas.
The co e con ibu ion o his pape is a new da a se ha allows he esea che o
ex ac a measu e o ma ke pa icipan s’ unce ain y on a high equency. Ins ead
o measu ing expec a ions by coun ing newspape a icles like in Bake , Bloom, and
Da is (2013) o in e ing in es o unce ain y om inancial p oduc s, we u n o social
media. Due o i s ubiqui y and esponsi eness, social media is a p omising da a sou ce
o all esea ch ques ions o which unce ain y o ma ke pa icipan s plays an
impo an ole.
We ha e a da a se ha includes he en i e discussion abou he ape an um episode
on Twi e .com. Twi e is a social media ne wo k on which use s can exchange sho
ex messages ( wee s) o a maximum 140 cha ac e s. Twi e is popula among
inancial ma ke p o essionals and Fed wa che s. Impo an ly, Twi e use s can no
only send messages o ollowe s, bu also o wa d wee s o commen on o he
messages. Thus, we ha e a da a se a hand ha ul ills he c i e ia ou lined be o e.
To be speci ic, we ha e he en i e Twi e olume on Fed ape ing be ween 15 Ap il and
30 Oc obe 2013. This is he pe iod o which mos o he ma ke eac ions could be
obse ed. The sample pe iod is ela i ely sho , which is dic a ed by da a a ailabili y,
bu no oo sho o es ima e a pa simonious model. Wi h his in mind, we use a model
below ha lea es su icien ly many deg ees o eedom.
The aw da a has been p o ided by Gnip.com, which is now pa o Twi e .com. The
da a was deli e ed in 10-minu e in e als o ma ed in JASON.3 The da a se includes
87,621 wee s om 27,276 use s loca ed in 136 economies and he exac ime hey
we e sen . We ans o m he da a in o a sp eadshee o ma and no malize he ime o
each message o New Yo k ime. We emo e public holidays and weekends in he US
om hese se ies because he e is no inancial da a a ailable on hese days. In
addi ion, e y ew wee s in languages o he han English had o be emo ed. Panel (a)
in Figu e 1 plo s he se ies o wee s agg ega ed o a daily se ies. The ho izon al axis
gi es he days in he sample pe iod. We see ha he numbe o wee s explodes a he
Sep embe 2013 FOMC mee ing, o which he ape ing decision o he Fed had been
expec ed. Howe e , he Fed decided o pos pone ape ing o a subsequen mee ing.
The numbe o wee s sys ema ically inc eases no only a ound he Sep embe FOMC
mee ing, bu also a ound o he FOMC mee ings. Fo ha eason we will p esen below
an es ima ion speci ica ion in which we con ol o FOMC mee ing days. The scaling o
he g aph unde s a es he magni ude o luc ua ions in he numbe o wee s, which
a y s ongly o e ime.
Based on hese ex messages we wan o de i e a quan i a i e measu e o
unce ain y. Fo his pu pose, we eso o ex mining and use a dic iona y wi h
keywo ds ha signal unce ain y o he sende o a gi en Twi e message. This
dic iona y o wo ds is aken om he widely ci ed pape o Lough an and McDonald
(2011).4 This wo d lis is pa icula ly use ul o ou pu poses because i is ela i ely
comp ehensi e and pa icula ly calib a ed o e lec unce ain y in inancial
communica ion. A dic iona y app oach is p e e able in ou con ex because Twi e
3 The da a is p op ie a y such ha he aw da a canno be made a ailable.
4 Thus, we c ea e an indica o o unce ain y which is based on he wisdom o he c owd in inancial
ma ke s. This is simila in spi i o he index c ea ed by Bachmann, Els ne , and Sims (2013) om i m
su eys, al hough we measu e a mo e speci ic o m o in es o unce ain y.
5
ADBI Wo king Pape 592 P. Tillman
messages a e ypically highly poin ed, o en cynical s a emen s wi h equen use o
ma ke ja gon. O he ex mining ools such as opic modeling migh ha e di icul ies
g asping he ull no ion o each message.
Table 1: Unce ain y Keywo ds
Abeyance
Abeyances
Almos
Al e a ion
Al e a ions
Ambigui ies
Ambigui y
Ambiguous
Anomalies
Anomalous
Anomalously
Anomaly
An icipa e
An icipa ed
An icipa es
An icipa ing
An icipa ion
An icipa ions
Appa en
Appa en ly
Appea
Appea ed
Appea ing
Appea s
App op ia e
App oxima ed
App oxima ely
App oxima es
App oxima ing
App oxima ion
App oxima ions
A bi a ily
A bi a iness
A bi a y
Assume
Assumed
Assumes
Assuming
Assump ion
Assump ions
Belie e
Belie ed
Belie es
Belie ing
Cau ious
Cau iously
Cau iousness
Cla i ica ion
Cla i ica ions
Concei able
Concei ably
Condi ional
Condi ionally
Con uses
Con using
Con usingly
Con usion
Con ingencies
Con ingency
Con ingen
Con ingen ly
Con ingen s
Could
C oss oad
C oss oads
Depend
Depended
Dependence
Dependencies
Dependency
Dependen
Depending
Depends
Des abilizing
De ia e
De ia ed
De ia es
De ia ing
De ia ion
De ia ions
Di e
Di e ed
Di e ing
Di e s
Doub
Doub ed
Doub ul
Doub s
Exposu e
Exposu es
Fluc ua e
Fluc ua ed
Fluc ua es
Fluc ua ing
Fluc ua ion
Fluc ua ions
Hidden
Hinges
Imp ecise
Imp ecision
Imp ecisions
Imp obabili y
Imp obable
Incomple eness
Inde ini e
Inde ini ely
Inde ini eness
Inde e minable
Inde e mina e
Inexac
Inexac ness
Ins abili ies
Ins abili y
In angible
In angibles
Likelihood
May
Maybe
Migh
Nea ly
Nonassessable
Occasionally
O dina ily
Pending
Pe haps
Possibili ies
Possibili y
Possible
Possibly
P ecau ion
P ecau iona y
P ecau ions
P edic
P edic abili y
P edic ed
P edic ing
P edic ion
P edic ions
P edic i e
P edic o
P edic o s
P edic s
P elimina ily
P elimina y
P esumably
P esume
P esumed
P esumes
P esuming
P esump ion
P esump ions
P obabilis ic
P obabili ies
P obabili y
P obable
P obably
Random
Randomize
Randomized
Randomizes
Randomizing
Randomly
Randomness
Reassess
Reassessed
Reassesses
Reassessing
Reassessmen
Reassessmen s
Recalcula e
Recalcula ed
Recalcula es
Recalcula ing
Recalcula ion
Recalcula ions
Reconside
Reconside ed
Reconside ing
Reconside s
Reexamina ion
Reexamine
Reexamining
Rein e p e
Rein e p e a ion
Rein e p e a ions
Rein e p e ed
Rein e p e ing
Rein e p e s
Re ise
Re ised
Risk
Risked
Riskie
Riskies
Riskiness
Risking
Risks
Risky
Roughly
Rumo s
Seems
Seldom
Seldomly
Some ime
Some imes
Somewha
Somewhe e
Specula e
Specula ed
Specula es
Specula ing
Specula ion
Specula ions
Specula i e
Specula i ely
Spo adic
Spo adically
Sudden
Suddenly
Sugges
Sugges ed
Sugges ing
Sugges s
Suscep ibili y
Tending
Ten a i e
Ten a i ely
Tu bulence
Unce ain
Unce ainly
Unce ain ies
Unce ain y
Unclea
Uncon i med
Undecided
Unde ined
Undesigna ed
Unde ec able
Unde e minable
Unde e mined
Undocumen ed
Unexpec ed
Unexpec edly
Un amilia
Un amilia i y
Un o ecas ed
Un o seen
Ungua an eed
Unhedged
Uniden i iable
Uniden i ied
Unknown
Unknowns
Unobse able
Unplanned
Unp edic abili y
Unp edic able
Unp edic ably
Unp edic ed
Unp o ed
Unp o en
Unquan i iable
Unquan i ied
Un econciled
Unseasonable
Unseasonably
Unse led
Unspeci ic
Unspeci ied
Un es ed
Unusual
Unusually
Unw i en
Vaga ies
Vague
Vaguely
Vagueness
Vaguenesses
Vague
Vagues
Va iabili y
Va iable
Va iables
Va iably
Va iance
Va iances
Va ian
Va ian s
Va ia ion
Va ia ions
Va ied
Va ies
Va y
Va ying
Vola ile
Vola ili ies
Vola ili y
Sou ce: Lough an and McDonald (2011). h p://www3.nd.edu/~mcdonald/Wo d_Lis s.h ml
6
ADBI Wo king Pape 592 P. Tillman
We see ha ou baseline indings emain unchanged. An unce ain y shock leads again
o a d op in asse p ices. The EMBI alls by 0.2% on impac . Hence, con olling o he
mac oeconomic en i onmen does no change ou o e all indings. Tha also means
ha he wee s in ou sample do no simply e lec he in e p e a ion o news eleases
such as non- a m pay oll employmen and in la ion.
Taken oge he , we ind obus e idence o an unce ain y channel o in e na ional
policy ansmission. The unce ain y abou u u e policy i sel has an e ec on eme ging
ma ke s’ asse p ices. This e ec comes on op o he egula spillo e s o policy
changed in he US on eme ging inancial ma ke s. The unce ain y channel gi es ise
o impo an policy implica ions, which a e discussed in he ollowing sec ion.
5. POLICY IMPLICATIONS
The esul s p esen ed in his pape unde line wo impo an policy implica ions, which
a e discussed in u n.
The i s implica ion pe ains o he design o mone a y policy in ad anced economies.
Ou esul s sugges a need o be e communica ion o policy changes. In gene al,
mone a y policy should be as p edic able and anspa en as possible in o de o allow
ma ke s o p ice in u u e policy mo emen s. This is impo an om he pe spec i e o
he domes ic economy, bu also ele an om he pe spec i e o eme ging economies.
The changing unce ain y s udied in his pape has been he esul o an ill-designed
communica ion o a majo policy u na ound. When Fed chai man Be nanke ga e his
es imony on 22 May 2013, he did men ion he possibili y o a educ ion in bond
pu chases unde QE3—an ob ious consequence o a pe sis en economic eco e y.
Al hough his ema ks we e ca e ully c a ed, ma ke s ne e heless o e eac ed. While
pa o he o e eac ion migh ha e been due o an i a ional panic, he ape an um
sugges s ha ca e ully communica ing policy s eps and, in pa icula , policy e e sals,
is c ucial. This is an impo an lesson o cen al banks such as he Bank o England,
he Bank o Japan, o he Eu opean Cen al Bank, o which he exi om
uncon en ional measu es and he e u n o policy no maliza ion is ye o come. These
cen al banks could lea n om he ape an um case s udy abou how o con ain
ma ke ji e s du ing he p ocess o policy no maliza ion.
The Fed i sel has lea ned om he communica ion mis akes in 2013. The li -o
o he Fede al Funds a e a ge by 0.25 pe cen age poin s in Decembe 2015,
al hough delayed se e al imes like in 2013, has been e y well an icipa ed by inancial
ma ke s. This was he consequence o an imp o ed communica ion s a egy o he
Fede al Rese e. Ma ke s eac ed in ad ance o he ac ual in e es a e ise, such
ha he e en ual decision was ecei ed wi hou an inc ease in ola ili y. The u u e pa h
o in e es a e no maliza ion will again equi e clea and p edic able policy
communica ion. Whe he he Fed will manage subsequen in e es a e changes as
well as he ecen one emains o be seen. Some obse e s a e skep ical: Bloombe g
(20 No embe 2015) i les ha [Fede al Rese e Bank o S . Louis P esiden James]
“Bulla d Says In es o s Should P epa e o Unce ain y E a” and o esees ha each
FOMC mee ing in 2016 will be “su ounded by ele a ed deg ees o unce ain y.”
The ele a ed ola ili y a he beginning o 2016, i.e., a e he i s Fed in e es a e hike,
lends impo ance o a c edibly policy s a egy. Some a gue ha because o he apidly
changing global en i onmen he i s in e es a e hike was a mis ake and should be
e e sed. The Fed co ec ly esponded o his by s essing how ca e ul i will be as
ega ds he iming o he nex a e inc ease.
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ADBI Wo king Pape 592 P. Tillman
The second implica ion add esses mac oeconomic policymaking in eme ging
economies. I is widely accep ed ha domes ic mac oeconomic weaknesses make
eme ging ma ke economies mo e p one o policy spillo e s om ad anced
economies. Recen wo k by Ahmed, Coulibaly, and Zla e (2015), Geo giadis
( o hcoming), and o he s shows ha he exposu e o spillo e s depends on domes ic
mac oeconomic undamen als, wi h he s eng h be ween undamen als and spillo e s
a ying s ongly ac oss economies and o e ime. Fu he mo e, he spillo e s o Fed
ape ing ecei ed special a en ion. Eicheng een and Gup a (2013) and Aizenman,
Binici, and Hu chison (2014) ound ha s onge undamen als do no shield eme ging
economies om spillo e e ec s, while he pape by Ahmed, Coulibaly, and Zla e
(2015) a gued ha economies wi h s onge undamen als a e less a ec ed by
ape ing shocks.
This line o esea ch ypically es ima es whe he a policy change in he US leads o
asse p ice changes in eme ging economies and whe he his esponse is a ying
ac oss economies oge he wi h mac oeconomic undamen als. Impo an ly, hese
pape s ocus on spillo e s o igina ing om igh ening o easing s eps, espec i ely, o
he Fede al Rese e—no om he unce ain y su ounding he u u e policy pa h.
A small amoun o li e a u e s udies he ole o undamen als o he suscep ibili y
o eme ging economies o mone a y policy unce ain y. Gau in, McLoughlin, and
Reinha d (2014) p o ided e idence o gene al policy unce ain y in ma u e economies
as a de e minan o in e na ional capi al lows o eme ging economies. They used he
policy unce ain y indica o s o Bake , Bloom, and Da is (2013), bu no a ocused
measu e o speci ic mone a y policy unce ain y such as he one used in his pape .
They also showed ha undamen als play a ole in de e mining he magni ude o
spillo e e ec s. Addi ional e idence is p o ided by Ca iè e-Swallow and Céspedes
(2013). These au ho s showed ha global unce ain y shocks, again measu ed by
iden i ying episodes o excep ionally high ealiza ions o he VIX index in he US
economy, d i e capi al lows. Mos impo an ly, domes ic mac oeconomic ulne abili y
inc eases he e ec s o unce ain y shocks on eme ging economies.
Based on he esul s p esen ed in his pape we can see ha he exchange a e
esponse is s onge in B azil, India, Indonesia, and Tu key compa ed wi h he
Republic o Ko ea and Thailand. While he o me coun ies belong o wha has been
called he “ agile i e” economies wi h pa icula ly weak undamen als, he Republic o
Ko ea and Thailand had much s onge undamen als. Hence, we ind p ima acie
e idence ha he sensi i i y o unce ain y shocks does indeed a y acco ding o
domes ic undamen als, al hough a mo e sys ema ic analysis is needed he e o
unde line his inding.
Taken oge he , s eng hening he esilience o eme ging economies should educe
he sensi i i y o policy spillo e s and also unce ain y spillo e s. A policy ha ackles
imbalances in go e nmen budge s and cu en accoun balances, a oids excessi e
indeb edness, and s eng hens domes ic inancial ins i u ions is bes sui ed o cope
wi h spillo e s o any kind. In addi ion, mac op uden ial policy ins umen s a e o en
seen as a p omising oolki o a oiding inancial imbalances in he ligh o ola ile
capi al in lows.
14
ADBI Wo king Pape 592 P. Tillman
6. CONCLUSIONS
This pape p o ided e idence o an unce ain y channel o in e na ional mone a y
policy ansmission. We showed ha asse p ices in eme ging ma ke economies
esponded o heigh ened unce ain y abou u u e US mone a y policy. The key
con ibu ion o his pape is he use o social media da a om Twi e .com, om which
an indica o o unce ain y is de i ed. An ad an age o his da a se is ha we de i e
unce ain y di ec ly om ma ke pa icipan s’ Twi e commen s and ha unce ain y
ocuses on a pa icula policy decision. Based on his da a and an es ima ed VAR
model we ound ha unce ain y a ec s eme ging ma ke s abo e and beyond he
ac ual igh ening and easing policy s eps. Hence, mi iga ing unce ain y i sel is
bene icial om an eme ging ma ke ’s poin o iew.
Ou esul s no only ha e implica ions o economic policymaking, as elabo a ed in
Sec ion 5, bu also o u u e esea ch on mone a y policy in small open economies.
Da a om social media sou ces has no ye been widely used o unde s anding
mone a y policy. In many ields o mone a y policy, expec a ions o ma ke pa icipan s
ma e —whe he i is abou u u e policy o u u e in la ion. In hese cases, social media
migh be pa icula ly use ul as i allows esea che s o measu e ma ke iews di ec ly
om he ele an people and on a e y high equency.
E en a e he Fed has exi ed uncon en ional mone a y policies, many cen al banks
such as he Eu opean Cen al Bank and he Bank o Japan a e cu en ly ex ending
hei uncon en ional se o policies. F om he pe spec i e o eme ging ma ke
economies, in pa icula hose in Asia, he ime o s ong policy spillo e s is a om
o e . This pape p o ided some insigh s in o he likely consequences o u u e
policy unce ain y.
15
ADBI Wo king Pape 592 P. Tillman
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Aizenman, J., M. Binici, and M. H. Hu chison. 2014. The T ansmission o Fede al
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Eicheng een, B., and P. Gup a. 2013. Tape ing Talk: The Impac o Expec a ions o
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APPENDIX
Figu e A1: Response o EMBI o Unce ain y Shock
EMBI = eme ging ma ke bond p ice index; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
Figu e A2: Response o MSCI o Unce ain y Shock
MSCI = eme ging ma ke s ock p ice index; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
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ADBI Wo king Pape 592 P. Tillman
Figu e A3: Response o FX Ra e o B azil o Unce ain y Shock
FX = o eign exchange; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
Figu e A4: Response o FX Ra e o Tu key o Unce ain y Shock
FX = o eign exchange; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
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ADBI Wo king Pape 592 P. Tillman
Figu e A5: Response o FX Ra e o India o Unce ain y Shock
FX = o eign exchange; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
Figu e A6: Response o FX Ra e o Indonesia o Unce ain y Shock
FX = o eign exchange; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
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ADBI Wo king Pape 592 P. Tillman
Figu e A7: Response o FX Ra e o he Republic o Ko ea o Unce ain y Shock
FX = o eign exchange; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
Figu e A8: Response o FX Ra e o Thailand o Unce ain y Shock
FX = o eign exchange; VIS = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
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ADBI Wo king Pape 592 P. Tillman
Figu e A9: Response o CDS Sp eads o Indonesia o Unce ain y Shock
CDS = c edi de aul swap; VIS = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
Figu e A10: Response o CDS Sp eads o Tu key o Unce ain y Shock
CDS = c edi de aul swap; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
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ADBI Wo king Pape 592 P. Tillman
Figu e A23: Response o EMBI o Unce ain y Shock wi h FOMC Dummies
wi h Mac oeconomic Fundamen als
EMBI = eme ging ma ke bond p ice index; FOMC = Fede al Open Ma ke Commi ee; VIX = ola ili y index.
No es: The shaded a ea e lec s 68% con idence bands. The ed line is he median o all d aws; he do ed line is he
d aw ha is closes o he median.
Sou ce: P epa ed by au ho .
29