Norges Bank

Working Paper

News-driven inflation expectations and information rigidities

Vegard H. Larsen, Leif Anders Thorsrud and Julia Zhulanova
Working Paper

We investigate the role played by the media in the expectations formation process of households. Using a novel news-topic-based approach we show that news types the media choose to report on, e.g., fiscal policy, health, and politics, are good predictors of households' stated inflation expectations. In turn, in a noisy information model setting, augmented with a simple media channel, we document that the underlying time series properties of relevant news topics explain the time-varying information rigidity among households. As such, we not only provide a novel estimate showing the degree to which information rigidities among households varies across time, but also provide, using a large news corpus and machine learning algorithms, robust and new evidence highlighting the role of the media for understanding inflation expectations and information rigidities.

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ISSN 1502-8143 (online)

Published 21 February 2019 12:00
Published 21 February 2019 12:00