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Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media

Alistair Macaulay and Wenting Song

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the role of narratives for macroeconomic fluctuations. Microfounding narratives as directed acyclic graphs, we show how exposure to different narratives can affect expectations in an otherwise-standard macroeconomic framework. We identify such competing narratives in news media reports on the US yield curve inversion in 2019, using techniques in natural language processing. Linking this to data from Twitter, we show that exposure to the narrative of an imminent recession causes consumers to display a more pessimistic sentiment, while exposure to a more neutral narrative implies no such change in sentiment. Applying the same technique to media narratives on inflation, we estimate that a shift to a viral narrative of inflation damaging the real economy in 2021 accounts for 42% of the fall in consumer sentiment in the second half of the year.

Keywords: conomic narratives; sentiment; yield curve; inflation; natural language processing; twitter; social media (search for similar items in EconPapers)
JEL-codes: C8 D8 D84 D91 E3 E31 E32 E4 E43 E44 E5 G1 (search for similar items in EconPapers)
Date: 2022-06-29
New Economics Papers: this item is included in nep-ban and nep-big
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media (2023) Downloads
Working Paper: Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media (2022) Downloads
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