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The demand and supply of information about inflation

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  • Massimiliano Marcellino
  • Dalibor Stevanovic

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. Dans cet article, nous étudions comment la demande et l'offre d'informations sur l'inflation affectent l'évolution de l'inflation. Comme indicateur de la demande d'informations, nous extrayons les tendances de Google (GT) pour des mots clés tels que "inflation", "taux d'inflation" ou "augmentation des prix". Le raisonnement est le suivant : lorsque les agents sont plus intéressés par l'inflation, ils doivent rechercher des informations à ce sujet, et Google est désormais une source naturelle. Comme indicateur de l'offre d'informations sur l'inflation, nous utilisons un indicateur basé sur un comptage (standardisé) des articles du Wall Street Journal (WSJ) contenant le mot "inflat" dans leur titre. Nous constatons que les mesures de la demande (GT) et de l'offre (WSJ) d'informations sur l'inflation jouent un rôle important dans la compréhension et la prévision de l'évolution réelle de l'inflation, les informations les plus granulaires améliorant la formation des attentes, en particulier pendant les périodes où l'inflation est très élevée ou très faible. En particulier, l'hypothèse de l'espérance rationnelle à information complète est rejetée, ce qui suggère que certaines rigidités informationnelles existent et attendent d'être exploitées. Contrairement à l'évidence établie, nous concluons que la communication des médias et l'attention des agents jouent un rôle important dans les attentes d'inflation agrégées, et ceci reste valable même en contrôlant les communications de la FED.

Suggested Citation

  • Massimiliano Marcellino & Dalibor Stevanovic, 2022. "The demand and supply of information about inflation," CIRANO Working Papers 2022s-27, CIRANO.
    • Handle: RePEc:cir:cirwor:2022s-27
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    References listed on IDEAS

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    Cited by:

    1. David Ardia & Keven Bluteau, 2024. "Optimal Text-Based Time-Series Indices," Papers 2405.10449, arXiv.org.

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    More about this item

    Keywords

    Inflation; Expectations; Google trends; Text analysis; Inflation; Attentes; Google trends; Analyse de texte;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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