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The role of media for consumers’ inflation expectation formation

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  • Lamla, Michael J.
  • Lein, Sarah M.

Abstract

The full-information rational expectations model is clearly rejected by the data. The expectation formation process has therefore important implications for macroeconomic outcomes. We examine how consumers react to information provided by the media, by taking into account that this information is imperfect. We show that information rigidities play a role empirically. Intensive news reporting improves the accuracy of consumers’ inflation expectations, because they receive more information. However, this effect depends on the tone of the news. If news are badly toned, the effect reverts.

Suggested Citation

  • Lamla, Michael J. & Lein, Sarah M., 2014. "The role of media for consumers’ inflation expectation formation," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 62-77.
  • Handle: RePEc:eee:jeborg:v:106:y:2014:i:c:p:62-77
    DOI: 10.1016/j.jebo.2014.05.004
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    More about this item

    Keywords

    Imperfect information; Inflation expectation formation; Media;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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