Media and Business Cycles

63 Pages Posted: 13 May 2019 Last revised: 10 Feb 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: February 7, 2020

Abstract

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

Baz, Salim and Cathcart, Lara and Michaelides, Alexander, Media and Business Cycles (February 7, 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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