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Going viral: Inflation narratives and the macroeconomy

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  • Weinig, Max
  • Fritsche, Ulrich

Abstract

This paper investigates the role of media narratives in shaping household inflation expectations. We construct dynamic indicators of inflation narratives using a semi-supervised topic model in combination with Latent Semantic Scaling, applied to a large corpus of U.S. news coverage from 2018 to 2023. Using Granger causality tests and local projections, we show that narratives concerning government spending, supply chain disruptions, the war in Ukraine, and corporate profits are systematically related to changes in both short- and medium-term inflation expectations. Further, our analysis reveals substantial heterogeneity across socioeconomic characteristics, contributing to a growing literature on the determinants of heterogeneous expectations.

Suggested Citation

  • Weinig, Max & Fritsche, Ulrich, 2025. "Going viral: Inflation narratives and the macroeconomy," WiSo-HH Working Paper Series 86, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory, revised 2025.
    • Handle: RePEc:zbw:uhhwps:307613
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    References listed on IDEAS

    as
    1. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    2. Müller, Henrik & Schmidt, Tobias & Rieger, Jonas & Hufnagel, Lena Marie & Hornig, Nico, 2022. "A German inflation narrative. How the media frame price dynamics: Results from a RollingLDA analysis," DoCMA Working Papers 9, TU Dortmund University, Dortmund Center for Data-based Media Analysis (DoCMA).
    3. Alistair Macaulay & Wenting Song, 2022. "Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media," Economics Series Working Papers 973, University of Oxford, Department of Economics.
    4. Gebhard Kirchgässner & Jürgen Wolters & Uwe Hassler, 2013. "Introduction to Modern Time Series Analysis," Springer Texts in Business and Economics, Springer, edition 2, number 978-3-642-33436-8, July.
    5. George W. Evans, 2001. "Expectations in Macroeconomics. Adaptive versus Eductive Learning," Revue Économique, Programme National Persée, vol. 52(3), pages 573-582.
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    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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