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The Role of Media for Inflation Forecast Disagreement of Households and Professionals

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Abstract

This paper investigates the effects of media coverage and macroeconomic con- ditions on inflation forecast disagreement of German households and professional forecasters. We adopt a Bayesian learning model in which media coverage of infla- tion affects forecast disagreement by influencing information sets as well as predictor choice. Our empirical results show that disagreement of households depends on the content of news stories (tone) but is unaffected by reporting intensity (volume) and by the heterogeneity of story content (information entropy). Disagreement of pro- fessionals does not depend on media coverage. With respect to the influence of macroeconomic variables we provide evidence that disagreement of households and professionals primarily depends on the current rate of inflation.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 09-223.

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Length: 38 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:kof:wpskof:09-223

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Keywords: forecast disagreement; inflation expectations; media coverage; Bayesian learning;

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References

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  1. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," CeRP Working Papers 54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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  3. Reis, Ricardo, 2005. "Inattentive Consumers," CEPR Discussion Papers 5053, C.E.P.R. Discussion Papers.
  4. Author-Name: Alan S. Blinder & Alan B. Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 327-397.
  5. repec:att:wimass:9530 is not listed on IDEAS
  6. Söderlind, Paul, 2000. "Inflation Forecast Uncertainty," CEPR Discussion Papers 2499, C.E.P.R. Discussion Papers.
  7. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  8. Branch, William A., 2007. "Sticky information and model uncertainty in survey data on inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 245-276, January.
  9. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2007. "Learning and Disagreement in an Uncertain World," Carlo Alberto Notebooks 48, Collegio Carlo Alberto.
  10. Carlos Capistrán & Allan Timmermann, 2009. "Disagreement and Biases in Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 365-396, 03.
  11. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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  13. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  14. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  15. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
  16. Lahiri, Kajal & Sheng, Xuguang, 2008. "Evolution of forecast disagreement in a Bayesian learning model," Journal of Econometrics, Elsevier, vol. 144(2), pages 325-340, June.
  17. Batchelor, Roy, 2007. "Bias in macroeconomic forecasts," International Journal of Forecasting, Elsevier, vol. 23(2), pages 189-203.
  18. Thomas Maag, 2009. "On the Accuracy of the Probability Method for Quantifying Beliefs about Inflation," KOF Working papers 09-230, KOF Swiss Economic Institute, ETH Zurich.
  19. Michael J. Lamla & Sarah M. Lein, 2008. "The Role of Media for Consumers' Inflation Expectation Formation," KOF Working papers 08-201, KOF Swiss Economic Institute, ETH Zurich.
  20. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
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Citations

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Cited by:
  1. Ehrmann, Michael & Eijffinger, Sylvester & Fratzscher, Marcel, 2010. "The role of central bank transparency for guiding private sector forecasts," Working Paper Series 1146, European Central Bank.
  2. Badarinza, Cristian & Gross, Marco, 2012. "Information flows and disagreement," Working Paper Series 1475, European Central Bank.
  3. Thomas Mayer & Holger Schmieding & Manfred Jäger-Ambrozewicz & Michael Lamla & Jan-Egbert Sturm & Ulrich Kater & Leon Leschus & Wolfgang Brachinger, 2011. "Zinserhöhung der EZB: Wie groß ist die Inflationsgefahr?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(14), pages 03-26, 07.
  4. Christina Leung, 2009. "The demographics of household inflation perceptions and expectations," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 34-42, June.
  5. Paul Hubert, 2013. "FOMC forecasts as a focal point for private expectations," Documents de Travail de l'OFCE 2013-12, Observatoire Francais des Conjonctures Economiques (OFCE).

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