Media, Economic Activity and Macroeconomic Expectations
75 Pages Posted: 13 May 2019 Last revised: 19 Dec 2020
Date Written: December 8, 2020
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: Suggested Citation