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Narratives about the macroeconomy

Peter Andre, Ingar Haaland, Christopher Roth, Mirko Wiederholt and Johannes Wohlfart

No 426, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We provide evidence on narratives about the macroeconomy-the stories people tell to explain macroeconomic phenomena-in the context of a historic surge in inflation. In surveys with more than 10,000 US households and 100 academic experts, we measure economic narratives in open-ended survey responses and represent them as Directed Acyclic Graphs. Households' narratives are strongly heterogeneous, coarser than experts' narratives, focus more on the supply side than on the demand side, and often feature politically loaded explanations. Households' narratives matter for their inflation expectation formation, which we demonstrate with descriptive survey data and a series of experiments. Informed by these findings, we incorporate narratives into an otherwise conventional New Keynesian model and demonstrate their importance for aggregate outcomes.

Keywords: Narratives; Expectation Formation; Causal Reasoning; Inflation (search for similar items in EconPapers)
JEL-codes: D83 D84 E31 E52 E71 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/302567/1/1902513436.pdf (application/pdf)

Related works:
Working Paper: Narratives about the Macroeconomy (2023) Downloads
Working Paper: Narratives about the Macroeconomy (2022) Downloads
Working Paper: Narratives about the Macroeconomy (2022) Downloads
Working Paper: Narratives about the Macroeconomy (2021) Downloads
Working Paper: Narratives about the Macroeconomy (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:302567

DOI: 10.2139/ssrn.4947636

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