Working Papers

Abstract: This paper studies the response of household inflation expectations to television news coverage of inflation. We analyze news data from CNN, Fox News, and MSNBC alongside a daily measure of inflation expectations. Using a local projection instrumental variables approach, we estimate the dynamic causal effect of inflation news coverage on household inflation expectations at a daily frequency. Increased media coverage of inflation raises expectations, with effects peaking within a few days and fading after approximately 11 days. Additionally, we document a key nonlinearity: release days with positive CPI surprises-i.e., inflation exceeding market expectations-generate more persistent news coverage, particularly on Fox News, and lead to stronger expectation responses than release days with negative surprises. 

Abstract: Given growing concerns among policymakers about the inflationary consequences of climate policies, I examine how households in the Euro Area adjust their inflation expectations in response to carbon policy shocks. The main finding is that a shock increasing energy inflation by one percentage point leads households to raise their inflation expectations by up to 0.1 percentage points. This aggregate response masks important cross-country heterogeneity, where the expectations response in countries with a larger share of energy-intensive goods in household consumption and a stronger deterioration of consumer sentiment is more pronounced. The timing and magnitude of these responses closely mirror those following an oil supply news shock, suggesting a common household expectations response to energy price shocks regardless of their source. Decomposing the response reveals that households adjust their expectations primarily through the energy price pass-through channel rather than in direct response to the shock itself.