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Granular Sentiments

Author

Listed:
  • Jamilov, Rustam
  • Kohlhas, Alexandre
  • Talavera, Oleksandr
  • Zhang, Mao

Abstract

We propose an empirically-consistent theory of business cycles driven by fluctuations in the sentiment of a small number of firms. Using computational linguistics and analyst forecasts, we find that 50 firms account for over 60% of the variation in U.S. sentiment and macroeconomic outcomes. Our "Granular Sentiment Index", which measures the sentiment of these firms, is dominated by downstream firms that are close to the final consumer. Incorporating endogenous attention choice into a general equilibrium model with heterogeneous firms, we show that this heterogeneity arises because downstream firms act as natural "information agglomerators". A calibrated version of the model shows that sentiment shocks to the 20% most downstream firms explain 70% of sentiment-driven (and 20% of aggregate) fluctuations.

Suggested Citation

  • Jamilov, Rustam & Kohlhas, Alexandre & Talavera, Oleksandr & Zhang, Mao, 2026. "Granular Sentiments," CEPR Discussion Papers 21238, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21238
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    File URL: https://cepr.org/publications/DP21238
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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