Media, Economic Activity and Macroeconomic Expectations

75 Pages Posted: 13 May 2019 Last revised: 19 Dec 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: December 8, 2020

Abstract

We construct indices based on newspaper mentions of a simple and repeated message (the word ``recession'') and show that they are useful coincident and leading indicators of U.S. economic activity, both in-sample and out-of-sample. Finance-specialized newspapers perform better than nonspecialized ones in forecasting economic activity, indicating how narratives might spread. Importantly, media coverage can affect individual expectations and economic decisions in the Michigan Survey of Consumer Expectations, and is correlated with Google searches for the word ``recession''. Our results provide evidence on how economic narratives might spread and affect actual economic decisions and therefore be important in understanding economic activity.

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, Economic Activity and Macroeconomic Expectations (December 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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