Sectoral Media Focus and Aggregate Fluctuations

42 Pages Posted: 9 Nov 2019 Last revised: 13 Nov 2019

See all articles by Ryan Chahrour

Ryan Chahrour

Boston College - Department of Economics

Kristoffer Nimark

Cornell University - Department of Economics

Stefan Pitschner

Uppsala University

Date Written: October 29, 2019

Abstract

We formalize the editorial role of news media in a multi-sector economy and show that media can be an independent source of business cycle fluctuations, even when the information they report is accurate. Our approach tightly links agents’ beliefs to real economic developments and allows for incomplete information without exogenous noise shocks. In the model, media monitor the economy, making state-dependent decisions on which subset of sectors to report. Accurate public reporting about sectoral developments that are newsworthy but unrepresentative, causes firms in all sectors to over- or underinvest in productive capacity. We construct historical time series of sectoral news coverage in the US and use them to calibrate a multi-sector model driven only by sectoral TFP shocks. Time-varying media focus generates demand-like aggregate fluctuations that are orthogonal to productivity. Presented with historical productivity shocks constructed by the BEA, the model reproduces the 2009 Great Recession.

Keywords: incomplete information, aggregate fluctuations, macro

JEL Classification: E32, D83, D84

Suggested Citation

Chahrour, Ryan A. and Nimark, Kristoffer and Pitschner, Stefan, Sectoral Media Focus and Aggregate Fluctuations (October 29, 2019). Swedish House of Finance Research Paper No. 19-12, Available at SSRN: https://ssrn.com/abstract=3477432 or http://dx.doi.org/10.2139/ssrn.3477432

Ryan A. Chahrour

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www.chahrour.net

Kristoffer Nimark

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Stefan Pitschner (Contact Author)

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

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