Media and Business Cycles

75 Pages Posted: 13 May 2019 Last revised: 21 Apr 2020

See all articles by Salim Baz

Salim Baz

Imperial College Business School

Lara Cathcart

Imperial College Business School

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: April 8, 2020

Abstract

We construct simple indices based on newspaper mentions of the word ``recession'' and show they are useful coincident and leading indicators of U.S. economic activity. These indices compare favourably, both in-sample and out-of-sample, with other business-cycle predictors. Importantly, finance-specialized newspapers perform better than non-specialized newspapers in forecasting economic activity, seem to move earlier at the margin than non-specialized media, and predict Google searches for the word ``recession''. These findings indicate that different forms of imperfect knowledge (rational inattention, narratives or different expectation formation mechanisms) are important in understanding business cycles.

Keywords: Media, business cycles, recession, expectations, coincident and leading indicators, imperfect knowledge, rational inattention, narratives

JEL Classification: D84, E32, E37, G00

Suggested Citation

Baz, Salim and Cathcart, Lara and Michaelides, Alexander, Media and Business Cycles (April 8, 2020). Available at SSRN: https://ssrn.com/abstract=3378043 or http://dx.doi.org/10.2139/ssrn.3378043

Salim Baz

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Lara Cathcart

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 (0) 20 7594 9126 (Phone)
+44 (0) 20 7594 9189 (Fax)

Alexander Michaelides (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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