Sectoral Media Focus and Aggregate Fluctuations
Kristoffer Nimark () and
Stefan Pitschner ()
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Stefan Pitschner: Uppsala University
No 987, Boston College Working Papers in Economics from Boston College Department of Economics
We formalize the editorial role of news media in a multi-sector economy and show that media can be an independent source of business cycle fluctuations, even when the information they report is accurate. Our approach tightly links agents’ beliefs to real economic developments and allows for incomplete information without exogenous noise shocks. In the model, media monitor the economy, making state-dependent decisions on which subset of sectors to report. Accurate public reporting about sectoral developments that are newsworthy but unrepresentative, causes firms in all sectors to over- or underinvest in productive capacity. We construct historical time series of sectoral news coverage in the US and use them to calibrate a multi-sector model driven only by sectoral TFP shocks. Time-varying media focus generates demand-like aggregate fluctuations that are orthogonal to productivity. Presented with historical productivity shocks constructed by the BEA, the model reproduces the 2009 Great Recession.
Keywords: News media; Business Cycles; Information frictions; Sectoral linkages (search for similar items in EconPapers)
JEL-codes: E32 D83 D84 (search for similar items in EconPapers)
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Working Paper: Sectoral Media Focus and Aggregate Fluctuations (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:987
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