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The Role of Media for Inflation Forecast Disagreement of Households and Professionals

This paper investigates the effects of media coverage and macroeconomic con- ditions on inflation forecast disagreement of German households and professional forecasters. We adopt a Bayesian learning model in which media coverage of infla- tion affects forecast disagreement by influencing information sets as well as predictor choice. Our empirical results show that disagreement of households depends on the content of news stories (tone) but is unaffected by reporting intensity (volume) and by the heterogeneity of story content (information entropy). Disagreement of pro- fessionals does not depend on media coverage. With respect to the influence of macroeconomic variables we provide evidence that disagreement of households and professionals primarily depends on the current rate of inflation.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 09-223.

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Length: 38 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:kof:wpskof:09-223
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  1. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: the Roles of Planning, Financial Literacy, and Housing Wealth," NBER Working Papers 12585, National Bureau of Economic Research, Inc.
  2. Söderlind, Paul, 2000. "Inflation Forecast Uncertainty," CEPR Discussion Papers 2499, C.E.P.R. Discussion Papers.
  3. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
  4. 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..
  5. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270 National Bureau of Economic Research, Inc.
  6. repec:att:wimass:9530 is not listed on IDEAS
  7. 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.
  8. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
  9. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  10. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  11. Dopke, Jorg & Fritsche, Ulrich, 2006. "When do forecasters disagree? An assessment of German growth and inflation forecast dispersion," International Journal of Forecasting, Elsevier, vol. 22(1), pages 125-135.
  12. Carlos Capistrán & Allan Timmermann, 2006. "Disagreement and Biases in Inflation Expectations," Working Papers 2006-07, Banco de México.
  13. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
  14. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
  15. Branch, William A., 2007. "Sticky information and model uncertainty in survey data on inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 245-276, January.
  16. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2006. "Learning and Disagreement in an Uncertain World," NBER Working Papers 12648, National Bureau of Economic Research, Inc.
  17. Thomas Maag, 2009. "On the Accuracy of the Probability Method for Quantifying Beliefs about Inflation," KOF Working papers 09-230, KOF Swiss Economic Institute, ETH Zurich.
  18. Batchelor, Roy, 2007. "Bias in macroeconomic forecasts," International Journal of Forecasting, Elsevier, vol. 23(2), pages 189-203.
  19. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  20. Lahiri, Kajal & Sheng, Xuguang, 2008. "Evolution of forecast disagreement in a Bayesian learning model," Journal of Econometrics, Elsevier, vol. 144(2), pages 325-340, June.
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