Granular Sentiments

Rustam Jamilov, Alexandre Kohlhas, Oleksandr Talavera and Mao Zhang

No 21238, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose an empirically consistent theory of business cycles driven by fluctuations in the sentiment of a small number of firms. Using computational linguistics and analyst forecasts, we find that around 50 firms can account for over 60% of the variation in U.S. sentiment and macroeconomic outcomes. Our †Granular Sentiment Index†, which measures the sentiment of these firms, is dominated by downstream firms that are close to the final consumer. Incorporating endogenous attention choice into a general equilibrium model with heterogeneous firms, we show that this heterogeneity arises because downstream firms act as natural “information agglomerators†. A calibrated version of the model shows that sentiment shocks to the 20% most downstream firms explain 70% of sentiment-driven (and 20% of aggregate) fluctuations.

Keywords: beliefs; Business cycles; Incomplete information; Granularity (search for similar items in EconPapers)
JEL-codes: D22 D83 E32 (search for similar items in EconPapers)
Date: 2026-03
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