Work in Progress
Economic Narratives and Realities of Geopolitical Risk, with Yevheniia Bondarenko, Vivien Lewis, Matthias Rottner, and Yves Schüler
Working Papers
Abstract:
This paper investigates how media narratives on fiscal policy shape household’s inflation expectations. We collect a large corpus of newspaper articles reporting on fiscal policy from four major German newspapers spanning from 2006 to March 2025. Using a large language model (ChatGPT) we introduce a strategy to automatically identify different fiscal narratives in text and construct narrative indices out of this data. We then estimate the effect of these narrative indices on household inflation expectations and find that they all have a positive significant effect varying in size. Lastly, we measure how fiscal narratives affect the transmission of a government spending shock to the economy and find that some of the narratives have an amplifying effect while others dampen the impact.
Abstract:
I investigate how inflation signals from different types of newspapers influence household inflation expectations in Germany. Using text data and the large language model GPT-3.5-turbo-1106, I construct newspaper-specific indicators and find significant heterogeneity in their informativeness based on the genre—tabloid versus reputable sources. The tabloid’s indicator is more effective for predicting perceived inflation among low-income and lower-education households, while reputable newspapers better predict higher-income and more educated households‘ expectations. Local projections reveal that tabloid sentiment shows an immediate decrease following a monetary policy shock, whereas responses from reputable newspapers are smaller and delayed. Household expectations also vary depending on the type of newspaper affected by the sentiment shock and the socioeconomic background of the household. These findings underscore the differentiated impact of media on inflation expectations across various segments of society, providing valuable insights for policymakers to tailor communication strategies effectively.
Abstract:
We show that the impact of supply and monetary policy shocks on consumer prices is state-dependent. First, we let the data determine two inflation regimes and find that they are characterized by high and low inflation volatility. We then identify upstream supply shocks using instrumental variables based on data outliers in the producer price series. Such shocks exhibit a more substantial and more persistent effect on downstream prices during periods of elevated inflation volatility (State 2) compared to phases of more stable consumer price growth (State 1). Similarly, monetary policy shocks are more effective in State 2. Exogenously differentiating regimes by the level of inflation or the shock size does not reveal state dependency. The evidence supports a model in which producers invest in price flexibility. This model predicts that stricter inflation targeting reduces price flexibility and, consequently, the pass-through of all shocks to inflation, beyond the standard channel that affects demand.
Publications
Innovation types in public sector organizations: a systematic review of the literature. with Laurin Buchheim and Alexnder Krieger, Management Review Quarterly (2020), 70, 509-533.