(with Eric van Wincoop)
Journal of International Economics
Abstract: We use Twitter opinions about the Euro-Dollar exchange rate to estimate the private information model of Bacchetta and van Wincoop (2006) and investigate the disconnect between the exchange rate and macro fundamentals over both short and long horizons. We simulate the model with the estimated parameters and replicate the methodology of three studies that document the disconnect empirically. The model is consistent with the findings of the empirical literature, though for a different reason over short than long horizons. Over short horizons private information generates a true disconnect between exchange rates and macro fundamentals that accounts for empirical findings. Over long horizons the theory shows that exchange rate changes are mostly driven by observed fundamentals, but empirical limitations in identifying this long-run relationship often lead to an appearance of disconnect in the data
Journal of Empirical Finance
Abstract: The paper introduces a daily index for expectations of returns based on tweets that express a directional prediction about the stock market index. I develop a dictionary that includes lexicon of traders to identify and classify opinionated tweets. The results show that (1) the Twitter Expectations of Returns Index (TERI) is positively correlated with weekly changes in net long position of investment managers, (2) expectations index of high followers accounts predicts stock market returns, and (3) private information is the primary source of return predictability.
Unobservable Monetary Policy Surprises and Exchange Rates
Abstract: The paper examines the effect of monetary policy statement shocks on exchange rates. I use Google's Natural Language tools to measure and track changes in the sentiment of FOMC and ECB post-meeting statements. The results reveal a negative relationship between the dollar's value and FOMC statement shocks. Investors sell (buy) the dollar when the sentiment of the FOMC statement is more positive (negative) than the previous one. This negative relationship could be explained by the special status of the U.S. dollar as a safe-haven currency and the significant effect of U.S. monetary policy on other countries' macroeconomic fundamentals. The value of the euro is positively related to ECB statement shocks. The size of the exchange rate response to statement shocks is comparable to that of term structure shocks. There is no material difference between the response of exchange rates in conventional and unconventional times. Statement shocks affect the exchange rates through the information channel
Economic and Financial Consequences of Pandemics
Abstract: This paper studies the medium-term economic consequences of major pandemics since 1870. The paper compares the average path of economic and financial indicators after a pandemic with their long-term path. According to data, inflation is low over the decade that follows the end of a major pandemic. Investments drive the rebound in real GDP. Financial assets provide above-average real returns. Credit markets experience a boom while fiscal and monetary authorities cutback government expenditure and money supply after pandemics.