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The Role of Media for Consumers' Inflation Expectation Formation

This paper analyzes the impact of the media on consumers' inflation expectations. We distinguish two channels through which media can influence expectations. First, the intensity of news coverage on inflation plays a role (volume channel). Second, the content of these reports matters (tone channel). Employing a unique data set capturing media reports on inflation in Germany comprising 01/1998-12/2006 we are able to discriminate between these two effects. We find that the volume effect generally improves the accuracy of consumer forecasts while the tone channel induces a media bias.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-201.

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Length: 31 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:kof:wpskof:08-201
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  1. Larcinese, Valentino & Puglisi, Riccardo & Snyder Jr., James M., 2011. "Partisan bias in economic news: Evidence on the agenda-setting behavior of U.S. newspapers," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1178-1189, October.
  2. Jörg Döpke & Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2008. "Sticky Information Phillips Curves: European Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1513-1520, October.
  3. Stefano DellaVigna & Ethan Kaplan, 2007. "The Fox News Effect: Media Bias and Voting," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1187-1234, 08.
  4. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  5. Olivier Coibion & Yuriy Gorodnichenko, 2012. "Information Rigidity and the Expectations Formation Process; A Simple Framework and New Facts," IMF Working Papers 12/296, International Monetary Fund.
  6. Brian G. Knight & Chun-Fang Chiang, 2008. "Media Bias and Influence: Evidence from Newspaper Endorsements," NBER Working Papers 14445, National Bureau of Economic Research, Inc.
  7. Jeffrey Milyo & Tim Groseclose, 2005. "A Measure of Media Bias," Working Papers 0501, Department of Economics, University of Missouri, revised 25 Aug 2005.
  8. Lena Dräger & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
  9. 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.
  10. Helge Berger & Michael Ehrmann & Marcel Fratzscher, 2011. "Monetary Policy in the Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 689-709, 06.
  11. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2009. "Disagreement among Forecasters in G7 Countries," Macroeconomics and Finance Series 200906, Hamburg University, Department Wirtschaft und Politik.
  12. Doepke Joerg & Dovern Jonas & Fritsche Ulrich & Slacalek Jiri, 2008. "The Dynamics of European Inflation Expectations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-23, March.
  13. Mestre, Ricardo, 2007. "Are survey-based inflation expections in the euro area informative?," Working Paper Series 0721, European Central Bank.
  14. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February.
  15. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 703-725, May.
  16. Leduc, Sylvain & Sill, Keith & Stark, Tom, 2007. "Self-fulfilling expectations and the inflation of the 1970s: Evidence from the Livingston Survey," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 433-459, March.
  17. Luigi Paciello & Mirko Wiederholt, 2014. "Exogenous Information, Endogenous Information, and Optimal Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 81(1), pages 356-388.
  18. Matthew Gentzkow & Jesse M. Shapiro, 2006. "What Drives Media Slant? Evidence from U.S. Daily Newspapers," NBER Working Papers 12707, National Bureau of Economic Research, Inc.
  19. Olivier Coibion & Yuriy Gorodnichenko, 2012. "What Can Survey Forecasts Tell Us about Information Rigidities?," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 116 - 159.
  20. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
  21. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  22. 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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