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Consumer sentiment, the economy, and the news media

Listed author(s):
  • Mark Doms
  • Norman J. Morin

The news media affects consumers' perceptions of the economy through three channels. First, the news media conveys economic data and the opinions of professionals to consumers. Second, consumers receive a signal about the economy through the tone and volume of economic reporting. Last, when the volume of economic news increases, consumers are more likely to update their expectations about the economy. We find evidence that all three channels affect consumer sentiment. We derive measures of the tone and volume of economic reporting, building upon the R-word index of The Economist. We find that reporting on the economy is not always consistent with actual economic events, and, consequently, there are times during which consumer sentiment is driven away from what economic fundamentals would suggest. We find evidence that consumers update their expectations about the economy much more frequently during periods of high news coverage and that "stickiness" in expectations is countercyclical.

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File URL: http://www.frbsf.org/economic-research/files/wp04-09bk.pdf
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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2004-09.

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Date of creation: 2004
Handle: RePEc:fip:fedfwp:2004-09
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