The Role of Media for Consumers' Inflation Expectation Formation

KOF Swiss Economic Institute, Working Paper No. 201

31 Pages Posted: 24 Jun 2008 Last revised: 13 Aug 2008

See all articles by Michael J. Lamla

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute; University of Essex

Sarah M. Lein

Swiss National Bank; University of Basel; ETH Zürich - KOF Swiss Economic Institute

Date Written: June, 24 2008

Abstract

This paper analyzes the impact of the media on consumers' inflation expectations. We distinguish two channels through which media can influence expectations. First, the intensity of news coverage on inflation plays a role (volume channel). Second, the content of these reports matters (tone channel). Employing a unique data set capturing media reports on inflation in Germany comprising 01/1998 - 12/2006 we are able to discriminate between these two effects. We find that the volume effect generally improves the accuracy of consumer forecasts while the tone channel induces a media bias.

Keywords: Monetary policy, expectation formation, media coverage, media bias

JEL Classification: E52, D83

Suggested Citation

Lamla, Michael J. and Lamla, Michael J. and Lein, Sarah M. and Lein, Sarah M., The Role of Media for Consumers' Inflation Expectation Formation (June, 24 2008). KOF Swiss Economic Institute, Working Paper No. 201, Available at SSRN: https://ssrn.com/abstract=1150774 or http://dx.doi.org/10.2139/ssrn.1150774

Michael J. Lamla (Contact Author)

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Sarah M. Lein

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

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