Inflation, Attention and Expectations

Etienne Briand, Massimiliano Marcellino and Dalibor Stevanovic
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Etienne Briand: University of Quebec in Montreal

No 24-05, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: We investigate the role of attention in shaping inflation dynamics. To measure the general public attention, we utilize Google Trends (GT) data for keywords such as "inflation". For professional attention, we construct an indicator based on the standardized count of Wall Street Journal (WSJ) articles with "inflation" in their titles. Through empirical analysis, we show that attention significantly impacts inflation dynamics, even when accounting for traditional inflation-related factors. Macroeconomic theory suggests that expectations formation is a natural mechanism to explain these findings. We find support for this hypothesis by measuring a decrease in professional forecasters' information rigidity during periods of high attention. In contrast to prior research, our findings highlight the critical roles of media communication and public attention in shaping aggregate inflation expectations. We then develop a theoretical model that captures our stylized facts, showing that both inflation dynamics and forecaster expectations are regime-dependent. Finally, we examine the implications of this framework for the effectiveness of monetary policy.

Keywords: Inflation; Expectations; Monetary policy; 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: 61 pages
Date: 2024-12, Revised 2024-12
New Economics Papers: this item is included in nep-big, nep-cba and nep-mon
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Working Paper: Inflation, Attention and Expectations (2025)
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