Consumer sentiment, the economy, and the news media

By Mark Doms, Norman J. Morin. 2004

230 citations recorded by the source corpus.

The news media affects consumers' perceptions of the economy through three channels. First, the news media conveys the latest economic data and the opinions of professionals to consumers. Second, consumers receive a signal about the economy through the tone and volume of economic reporting. Last, the greater the volume of news about the economy, the greater the likelihood that consumers will update their expectations about the economy. We find evidence that all three of these channels affect consumer sentiment. We derive measures of the tone and volume of economic reporting, building upon the R-word index of The Economist. We find that there are periods when reporting on the economy has not been consistent with actual economic events, especially during the early 1990s. As a consequence, there are times during which consumer sentiment is driven away from what economic fundamentals would suggest. We also find evidence supporting that consumers update their expectations about the economy much more frequently during periods of high news coverage than in periods of low news coverage; high news coverage of the economy is concentrated during recessions and immediately after recessions, implying that "stickiness" in expectations is countercyclical. Finally, because the model of consumer sentiment is highly nonlinear, month-to-month changes in sentiment are difficult to interpret. For instance, although an increase in the number of articles that mention "recession" typically is associated with a decline in sentiment, under certain conditions it can actually result in an increase in various sentiment indexes.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/9a48268eb82039b012ca7376d0756066cd9220d1

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Citations in the corpus

News on Inflation and the Epidemiology of Inflation Expectations (2013, background): “Doms and Morin (2004) point to a third channel, suggesting that consumers receive a signal about the economy through the tone of economic reporting.22 This section is aimed at disentangling the differ- ential impact that favorable and unfavorable news on prices may exert on…”
The Role of Media for Inflation Forecast Disagreement of Households and Professionals (2012, unknown): “4Other studies consider the relation of media activity and consumer sentiment about real economic activity rather than inflation and confirm the relevance of media reporting, see Doms and Morin (2004) and Soroka (2006).”
Between the hammer and the anvil: The impact of economic sanctions and oil prices on Russia’s ruble (2016, background): “Doms and Morin (2004) created205 sentiment indicators based on the number of articles that contain certain keywords and phrases in the title 7 AC CE PT ED M AN US CR IP T or in the first paragraph in large US newspapers.”
Investor Sentiment and the Stock Market’s Reaction to Monetary Policy (2010, unknown): “These industry effects are consistent with Ehrmann and Fratzscher (2004). Bernanke and Kuttner (2005) show that the observed crossindustry variation in stock responses to target rate shocks is explained reasonably well by the one-factor CAPM.”
Uncertain Times, uncertain measures (2009, methodology): “labor productivity.(18) To make the comparison with Bloom (forthcoming) as simple as possible, we also report the results of VARs with all variables are detrended using an HP filter and specified with 12 lags.”