IDEAS home Printed from https://ideas.repec.org/p/kof/wpskof/08-201.html
   My bibliography  Save this paper

The Role of Media for Consumers' Inflation Expectation Formation

Author

Listed:
  • Michael J. Lamla
  • Sarah M. Lein

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:kof:wpskof:08-201
    DOI: 10.3929/ethz-a-005640674
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.3929/ethz-a-005640674
    Download Restriction: no
    File URL: https://libkey.io/10.3929/ethz-a-005640674?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    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, Oxford University Press, vol. 117(4), pages 1295-1328.
    5. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
    6. 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.
    7. 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.
    8. Stefano DellaVigna & Ethan Kaplan, 2007. "The Fox News Effect: Media Bias and Voting," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1187-1234.
    9. Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2012. "Disagreement Among Forecasters in G7 Countries," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1081-1096, November.
    10. 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.
    11. Chun-Fang Chiang & Brian Knight, 2011. "Media Bias and Influence: Evidence from Newspaper Endorsements," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 795-820.
    12. J÷Rg D÷Pke & 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.
    13. repec:pri:cepsud:99blinderkrueger is not listed on IDEAS
    14. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," American Economic Review, American Economic Association, vol. 105(8), pages 2644-2678, August.
    15. 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, June.
    16. 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.
    17. Pfajfar, Damjan & Žakelj, Blaž, 2014. "Experimental evidence on inflation expectation formation," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 147-168.
    18. Lena Dr䧥r & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
    19. Riccardo Puglisi & James M. Snyder, Jr., 2008. "Media Coverage of Political Scandals," NBER Working Papers 14598, National Bureau of Economic Research, Inc.
    20. Tim Groseclose & Jeffrey Milyo, 2005. "A Measure of Media Bias," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1191-1237.
    21. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
    22. Alan Blinder & Alan Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Working Papers 875, Princeton University, Department of Economics, Industrial Relations Section..
    23. Matthew Gentzkow & Jesse M. Shapiro, 2010. "What Drives Media Slant? Evidence From U.S. Daily Newspapers," Econometrica, Econometric Society, vol. 78(1), pages 35-71, January.
    24. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    25. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-138, May.
    26. Mestre, Ricardo, 2007. "Are survey-based inflation expections in the euro area informative?," Working Paper Series 721, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Larsen, Vegard H. & Thorsrud, Leif Anders & Zhulanova, Julia, 2021. "News-driven inflation expectations and information rigidities," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 507-520.
    2. Bennani, Hamza, 2018. "Media coverage and ECB policy-making: Evidence from an augmented Taylor rule," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 26-38.
    3. Lena Draeger, 2011. "Endogenous persistence with recursive inattentiveness," KOF Working papers 11-285, KOF Swiss Economic Institute, ETH Zurich.
    4. Lena Draeger & Michael J. Lamla, 2013. "Imperfect information and inflation expectations," KOF Working papers 13-329, KOF Swiss Economic Institute, ETH Zurich.
    5. Lena Dräger & Michael Lamla, 2013. "Imperfect Information and Inflation Expectations: Evidence from Microdata," Macroeconomics and Finance Series 201301, University of Hamburg, Department of Socioeconomics.
    6. Hamza Bennani, 2016. "Media Coverage and ECB Policy-Making: Evidence from a New Index," EconomiX Working Papers 2016-38, University of Paris Nanterre, EconomiX.
    7. repec:hrv:faseco:33907956 is not listed on IDEAS
    8. Giovanni Facchini & Anna Maria Mayda & Riccardo Puglisi, 2017. "Illegal immigration and media exposure: evidence on individual attitudes," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-36, December.
    9. Paul Hubert, 2014. "FOMC Forecasts as a Focal Point for Private Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(7), pages 1381-1420, October.
    10. Michael J. Lamla & Thomas Maag, 2012. "The Role of Media for Inflation Forecast Disagreement of Households and Professional Forecasters," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(7), pages 1325-1350, October.
    11. Kenza Benhima & Isabella Blengini, 2020. "Optimal Monetary Policy when Information is Market-Generated," Economic Journal, Royal Economic Society, vol. 130(628), pages 956-975.
    12. Juan Camilo Anzoátegui-Zapata & Juan Camilo Galvis-Ciro, 2020. "Disagreements in Consumer Inflation Expectations: Empirical Evidence for a Latin American Economy," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 16(2), pages 99-122, November.
    13. Robert L. Czudaj, 2021. "Heterogeneity of Beliefs and Information Rigidity in the Crude Oil Market: Evidence from Survey Data," Chemnitz Economic Papers 050, Department of Economics, Chemnitz University of Technology, revised Sep 2021.
    14. Sarah M. Lein & Thomas Maag, 2011. "The Formation Of Inflation Perceptions: Some Empirical Facts For European Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(2), pages 155-188, May.
    15. Dovern, Jonas & Fritsche, Ulrich & Loungani, Prakash & Tamirisa, Natalia, 2015. "Information rigidities: Comparing average and individual forecasts for a large international panel," International Journal of Forecasting, Elsevier, vol. 31(1), pages 144-154.
    16. Carrera Cesar, 2012. "Estimating Information Rigidity Using Firms' Survey Data," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-34, June.
    17. Ou, Shengliang & Zhang, Donghai & Zhang, Renbin, 2021. "Information frictions, monetary policy, and the paradox of price flexibility," Journal of Monetary Economics, Elsevier, vol. 120(C), pages 70-82.
    18. Kryvtsov, Oleksiy & Petersen, Luba, 2021. "Central bank communication that works: Lessons from lab experiments," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 760-780.
    19. Eggers, Andrew C. & Ellison, Martin & Lee, Sang Seok, 2021. "The economic impact of recession announcements," Journal of Monetary Economics, Elsevier, vol. 120(C), pages 40-52.
    20. Riccardo Puglisi & James M. Snyder Jr., 2015. "The Balanced Us Press," Journal of the European Economic Association, European Economic Association, vol. 13(2), pages 240-264, April.
    21. Andrade, Philippe & Crump, Richard K. & Eusepi, Stefano & Moench, Emanuel, 2016. "Fundamental disagreement," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 106-128.

    More about this item

    Keywords

    Monetary policy; Expectation formation; Media coverage; Media bias;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kof:wpskof:08-201. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/koethch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/koethch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.