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Journal Article
Can the News Drive Inflation Expectations?
How households expect inflation to evolve plays an important role in explaining overall inflation dynamics. Household expectations rose dramatically over the past year or so, much faster than professional forecasters’ inflation expectations. News coverage can explain part of this growing gap. Analyzing the volume and sentiment of daily news articles on inflation suggests that one-fourth of the increased gap between household and professional expectations can be attributed to heightened negative media coverage. These results highlight the important impact of the content and tone of economic ...
Working Paper
Nowcasting Turkish GDP and News Decomposition
Real gross domestic product (GDP) data in Turkey are released with a very long delay compared with other economies, between 10 and 13 weeks after the end of the reference quarter. To infer the current state of the economy, policy makers, media, and market practitioners examine data that are more timely, that are released at higher frequencies than the GDP. In this paper, we propose an econometric model that automatically allows us to read through these more current and higher-frequency data and translate them into nowcasts for the Turkish real GDP. Our model outperforms nowcasts produced by ...
Working Paper
Estimating Macroeconomic News and Surprise Shocks
The importance of understanding the economic effects of TFP news and surprise shocks is widely recognized in the literature. This paper examines the ability of the state-of-the-art VAR approach in Kurmann and Sims (2021) to identify responses to TFP news shocks and possibly surprise shocks in theory and practice. When applied to data generated from conventional New Keynesian DSGE models with shock processes that match key TFP moments, this estimator tends to be strongly biased, both in the presence of TFP measurement error and in its absence. This bias worsens in realistically small samples, ...
Briefing
How Expectations About Future Productivity Drive Inventories
To what extent do expectations about future productivity developments drive business cycles? This Economic Brief reviews the state of the literature and discusses how new research by the authors establishes a novel method to answer. We specifically focus on firms' inventories, which stock goods available for future sales. We find that these inventories expand strongly to news about future productivity developments. This confirms that expectations about future productivity are a powerful force behind aggregate fluctuations, a finding with important implications for widely used economic models.
Working Paper
Jointly Estimating Macroeconomic News and Surprise Shocks
This paper clarifies the conditions under which the state-of-the-art approach to identifying TFP news shocks in Kurmann and Sims (2021, KS) identifies not only news shocks but also surprise shocks. We examine the ability of the KS procedure to recover responses to these shocks from data generated by a conventional New Keynesian DSGE model. Our analysis shows that the KS response estimator tends to be strongly biased even in the absence of measurement error. This bias worsens in realistically small samples, and the estimator becomes highly variable. Incorporating a direct measure of TFP news ...
Working Paper
Estimating Macroeconomic News and Surprise Shocks
The importance of understanding the economic effects of TFP news and surprise shocks is widely recognized in the literature. A common VAR approach is to identify responses to TFP news shocks by maximizing the variance share of TFP over a long horizon. Under suitable conditions, this approach also implies an estimate of the surprise shock. We find that these TFP max share estimators tend to be strongly biased when applied to data generated from DSGE models with shock processes that match the TFP moments in the data, both in the presence of TFP measurement error and in its absence. ...
Working Paper
Measuring News Sentiment
This paper demonstrates state-of-the-art text sentiment analysis tools while developing a new time-series measure of economic sentiment derived from economic and financial newspaper articles from January 1980 to April 2015. We compare the predictive accuracy of a large set of sentiment analysis models using a sample of articles that have been rated by humans on a positivity/negativity scale. The results highlight the gains from combining existing lexicons and from accounting for negation. We also generate our own sentiment-scoring model, which includes a new lexicon built specifically to ...
Working Paper
News Selection and Household Inflation Expectations
We examine the impact of systematic media reporting on household inflation expectations, focusing on how selective news coverage influences household responses to inflation news. In a model where monitoring all economic developments is costly, households will account for news selection when forming inflation expectations. The model implies an asymmetry: news about high inflation influences inflation expectations more than news about low inflation. Using micro panel data, we find support for this hypothesis. Exposure to news about higher prices increases household inflation expectations by ...