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News-driven inflation expectations and information rigidities

Author

Listed:
  • Vegard H. Larsen

    (Norges Bank and Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School)

  • Leif Anders Thorsrud

    (Norges Bank and Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School)

  • Julia Zhulanova

    (Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School)

Abstract

We investigate the role played by the media in the expectations formation process of households. Using a novel news-topic-based approach we show that news types the media choose to report on, e.g., fiscal policy, health, and politics, are good predictors of households' stated inflation expectations. In turn, in a noisy information model setting, augmented with a simple media channel, we document that the underlying time series properties of relevant news topics explain the time-varying information rigidity among households. As such, we not only provide a novel estimate showing the degree to which information rigidities among households varies across time, but also provide, using a large news corpus and machine learning algorithms, robust and new evidence highlighting the role of the media for understanding inflation expectations and information rigidities.

Suggested Citation

  • Vegard H. Larsen & Leif Anders Thorsrud & Julia Zhulanova, 2019. "News-driven inflation expectations and information rigidities," Working Paper 2019/5, Norges Bank.
    • Handle: RePEc:bno:worpap:2019_05
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    Keywords

    expectations; media; machine learning; inflation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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