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. 

Given growing concerns among policymakers about the inflationary consequences of climate policies, this paper examines how households in the Euro Area adjust their inflation expectations in response to carbon policy shocks. I find that a shock increasing energy inflation by one percentage point leads households to raise their inflation expectations by up to 0.15 percentage points. This aggregate response masks important cross-country heterogeneity, reflecting variation in both the share of energy-intensive goods in household consumption and the extent of consumer sentiment deterioration. Household inflation expectations increase more strongly in countries where energy—particularly transport fuels—accounts for a larger portion of household spending, or where consumer confidence declines more sharply. Moreover, the timing and magnitude of these responses closely mirror those following an oil supply shock, suggesting a common pattern in how households adjust their inflation expectations in response to different types of energy-related inflationary pressures.