News-driven inflation expectations and information rigidities

From a new working paper:

“In most democracies the fourth estate, i.e., the news media, plays an important role in society. The media not only has the capacity of advocacy and implicit ability to frame political and economic issues, but it is also the primary source from which most people get information. In macroeconomics, expectations are center stage. But, expectations are shaped by information, and information does not travel unaffected through the ether. Rather, it is digested, filtered, and colored by the media. Surprisingly, however, the potential independent role of the media in the expectation formation process has received relatively little attention in macroeconomics, both in theory and in applied work.

In this paper we build on a growing literature providing evidence for a departure from the full information rational expectation (FIRE) assumption towards a theory of information rigidities (Coibion and Gorodnichenko (2012), Dovern et al. (2015), Coibion and Gorodnichenko (2015a), Armantier et al. (2016)), and investigate the potential role played by the media for households’ inflation expectations in this setting.”

Posted by at 4:38 PM

Labels: Forecasting Forum


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