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

Macaulay, Alistair and Song, Wenting (2022): Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: conomic narratives, sentiment, yield curve, inflation, natural language processing, twitter, social media
• Subjects: C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G1 - General Financial Markets

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