The demand and supply of information about inflation

Massimiliano Marcellino and Dalibor Stevanovic

No 22-06, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: In this article we study how the demand and supply of information about inflation affect inflation developments. As a proxy for the demand of information, we extract Google Trends (GT) for keywords such as "inflation", "inflation rate", or "price increase". The rationale is that when agents are more interested about inflation, they should search for information about it, and Google is by now a natural source. As a proxy for the supply of information about inflation, we instead use an indicator based on a (standardized) count of the Wall Street Journal (WSJ) articles containing the word "inflat" in their title. We find that measures of demand (GT) and supply (WSJ) of inflation information have a relevant role to understand and predict actual inflation developments, with the more granular information improving expectation formation, especially so during periods when inflation is very high or low. In particular, the full information rational expectation hypothesis is rejected, suggesting that some informational rigidities exist and are waiting to be exploited. Contrary to the existing evidence, we conclude that the media communication and agents attention do play an important role for aggregate inflation expectations, and this remains valid also when controlling for FED communications.

Keywords: Inflation; Expectations; Google trends; Text analysis (search for similar items in EconPapers)
JEL-codes: C53 C83 D83 D84 E31 E37 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2022-08, Revised 2022-11
New Economics Papers: this item is included in nep-big and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The demand and supply of information about inflation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bbh:wpaper:22-06

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