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Sectoral Media Focus and Aggregate Fluctuations

Ryan Chahrour and Kristoffer Nimark ()

No 1034, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we formalize the monitoring and editorial functions of news media within a multi-sector macroeconomic model. Each sector is subject to sector-specific productivity shocks, which are perfectly observed by firms in that sector. In addition to their local information, firms also learn from the news media about the developments in those sectors that the media choose to cover. Which sectors news media report about is a deterministic function of the cross-section of sectoral productivity shocks and the network structure of production. When the most newsworthy sectors are unrepresentative of the rest of the economy, the public nature of media reporting generates prediction errors about economic conditions that are correlated across sectors. Sectoral media focus can thus cause fluctuations in aggregate output that are caused by undue optimism or pessimism shared by all sectors in the economy. Because what news media report and how firms' resulting posteriors differ from the true state of the world are deterministic functions of the cross-section of productivity shocks, the theory makes tight predictions about when and why firms will be unduly optimistic or pessimistic.

Date: 2016
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Working Paper: Sectoral Media Focus and Aggregate Fluctuations (2019) Downloads
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