News-driven inflation expectations and information rigidities
It is concluded that the news topics media report on are good predictors of both inflation and inflation expectations, and in a noisy information model, it is documented that the time series features of relevant topics help explain time-varying information rigidity among households.
Abstract
Using a large news corpus and machine learning algorithms we investigate the role played by the media in the expectations formation process of households, and conclude that the news topics media report on are good predictors of both inflation and inflation expectations. In turn, in a noisy information model, augmented with a simple media channel, we document that the time series features of relevant topics help explain time-varying information rigidity among households. As such, we provide a novel estimate of state-dependent information rigidities and present new evidence highlighting the role of the media in understanding inflation expectations and information rigidities.