Work in Progress
Fiscal Narratives and Inflation – joint with Farah Tohme
Abstract:
One of the main assumptions of the fiscal theory of the price level is that when the net present value of government surpluses decreases, the price level has to increase, which agents are aware of, leading them to set higher prices accordingly. By using a large set of German newspaper articles discussing fiscal policy we want to test if this link between fiscal expansion and inflation actually exists in the media. Only if this is the case and assuming media to be a proxy for the households‘ information set, fiscal expansion could lead to higher inflation expectations. We use natural language processing (NLP) techniques and artificial intelligence to construct indicators on fiscal narratives. We start by evaluating how often fiscal expansion and consolidation are discussed in the news across time and how often the same articles also talk about prices. In a next step, we explore the relationship between fiscal expansion and inflation, the perception of unsustainable debt, and whether there is a prevailing opinion on whether the government should spend or save more. We find substantial time variation in these narratives, as well as notable differences across publishing houses.
Working Papers
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.