Media and Business Cycles
63 Pages Posted: 13 May 2019 Last revised: 10 Feb 2020
Date Written: February 7, 2020
We construct empirical measures of U.S. business-cycle activity based on media mentions of the word "recession.'' We show that the measures relying on specialized newspapers are useful coincident and leading indicators of U.S. economic activity, and compare favourably, both in-sample and out-of-sample, with existing business-cycle predictors. The simple media-based index provides incremental predictive value relative to the Surveys of Professional Forecasters and recently developed measures of macroeconomic and financial uncertainty. The index is also strongly correlated with the Michigan Consumer Sentiment index, with Google searches for the word "recession'' and with US GDP now-casting measures. Our results are consistent with business cycle theories emphasizing imperfect knowledge, limited attention and narratives.
Keywords: Media, business cycles, recession, expectations, coincident and leading indicators, imperfect knowledge, rational inattention, narratives
JEL Classification: D84, E32, E37, G00
Suggested Citation: Suggested Citation