Working Paper: CEPR ID: DP17305
Authors: Peter Andre; Ingar Haaland; Christopher Roth; Johannes Wohlfart
Abstract: We provide evidence on narratives about the macroeconomy—the stories people tellto explain macroeconomic phenomena—in the context of a historic surge in inflation.We measure economic narratives in open-ended survey responses and represent themas Directed Acyclic Graphs. We apply this approach in surveys with more than 8,000US households and 100 academic experts. We document three main findings. First,compared to experts, households’ narratives are coarser, focus less on the demand side,and are more likely to feature politically-loaded explanations. Second, households’narratives strongly shape their inflation expectations, which we demonstrate withdescriptive survey data and a series of experiments. Third, an experiment varying newsconsumption shows that the media is an important source of narratives. Our findingsdemonstrate the relevance of narratives for understanding macroeconomic expectationformation.
Keywords: narratives; expectation formation; causal reasoning; inflation; media attention
JEL Codes: D83; D84; E31; E52; E71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| narratives (Y40) | inflation expectations (E31) |
| households' narratives (D10) | perception of inflation causes (E31) |
| attribution of inflation to energy crisis (E31) | higher inflation expectations (E31) |
| attribution of inflation to temporary pent-up demand (E31) | lower inflation expectations (E31) |
| media consumption (L82) | narratives (Y40) |