Inflation and Expectations
Lightning Round SessionSunday, Jan. 4, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Fabio Gomez-Rodriguez, Lehigh University
News, Sentiment, and Inflation Expectations: Insights From Social Media Data and Experiments
Abstract
News media serve as a primary information source for most people, with social media taking on a growing role in the way news is distributed and interacted. This paper investigates how households use information conveyed through media to form their inflation forecasts. Leveraging microdata, social media news data, and machine learning techniques, I show that households dynamically update the news topics they focus on when forming inflation expectations. However, the impact of news media on expectations is time varying — at times, it accounts for a significant portion of the variation in expectations, while at other times, its influence diminishes. Using social media reactions as a proxy for news-induced sentiment, I show that sentiment plays a central role in shaping expectations and can predict the direction of forecast revisions, even when the news is non-economic and unlikely to affect inflation through standard mechanisms. A novel information provision experiment, incorporating a sentiment elicitation method, further confirms the causal importance of sentiment in the expectations formation process. Moreover, I demonstrate that identical policy-related information, when framed with different tones, evokes distinct sentiment that lead to asymmetric effects on forecast revisions. I develop a simple Bayesian learning model in which sentiment distorts signal perception, explaining these results.How Fair This Spot? Evidence from Structural Estimates of the Wage Phillips Relation
Abstract
In the wage Phillips curve of the labour markets (Phillips, 1958; Lipsey, 1960; Tobin, 1972), we reconsider a role of fair wage (Akerlof, 1979; 1982; 1990 w/ Yellen). Our motivation stems from practical importance in employer/employee relationships of the following behavioral preferences: other-regarding social preference including reciprocity (Akerlof, 1982; Bowles and Park, 2005); and norms or reference-dependent preference (Akerlof and Kranton, 2010). The paper builds a structural macroeconomic model of the wage Phillips relation with fair wage and emulation/ reciprocity, where a key parameter is related to how work norms are formed as a partial gift exchange between employers and employees. Our estimates with a simulated method of moments empirically decipher the Phillips relation to calibrate the dynamic responses in the labour markets of the US, UK and Japan with differential socio-economic changes.Wage-Price Spiral at the Start of Your Career
Abstract
This study investigates the long-term effects of economic conditions at career start, focusing on the potential for a wage-price spiral. I examine how various economic indicators, including state-level non-tradable inflation, personal consumption expenditure (PCE) growth, and monetary policy measures, impact individuals' income trajectories and employment outcomes over time.To guide my empirical analysis, I develop a New Keynesian model with search and matching frictions, incorporating heterogeneous regions and endogenous human capital accumulation. The model explicitly distinguishes between the effects of nominal spending growth and inflation on wage formation, particularly in the context of initial labor market conditions. Key equations include a region-specific New Keynesian Phillips Curve, a Dynamic IS Curve, and a Wage Phillips Curve that accounts for human capital accumulation. The model generates testable implications regarding the distinct effects of nominal spending growth and inflation, the persistence of initial labor market conditions, and the role of human capital in amplifying these effects.
Utilizing a unique dataset that combines state-level non-tradable inflation data from Hazell et al. (2022) with personal income and employment data from the Current Population Survey, I employ a panel regression approach to estimate the effects of economic conditions at graduation on subsequent career outcomes. My methodology allows me to disentangle the effects of inflation, spending growth, and monetary policy stance.
My results reveal that nominal spending growth has a significant positive effect on long-term income trajectories, while non-tradable inflation shows no significant impact. Interestingly, I find that the Federal Funds rate relative to spending growth affects outcomes, while the real Federal Funds rate does not. These findings suggest that nominal factors play a crucial role in shaping career paths and are consistent with the model's predictions. These results challenge conventional wisdom about the primacy of inflation in determining economic outcomes.
When News Isn't Just News: Partisan Affiliation and Inflation Expectations
Abstract
This paper examines how political partisanship shapes inflation expectations through the perceived favorability of economic news, using micro-level data from the Michigan Survey of Consumers from 2006 to 2024. We find that partisanship systematically influences how individuals interpret the favorability of economic news, with supporters of the incumbent party consistently perceiving news more favorably than opponents. More importantly, supporters revise inflation expectations downward, neutralizing the influence of unfavorable economic new. These patterns emerge primarily between elections, whereas around elections, partisan bias dominates, and news favorability has little impact. To understand our empirical findings, we present a theoretical model where agents Bayesian-update news with bias. Our findings highlight news perception as a key transmission channel for partisan differences in inflation expectations.Pictures of You – Future Thinking and the Formation of Expectations in an Election Context
Abstract
Despite the strong presence of visual narratives in recent election campaigns, little is known about how such personal future visions affect vote-shaping macroeconomic beliefs. We study the role of future thinking – the ability to imagine oneself in detailed, personal and visual future scenarios by “time-traveling” mentally – in inflation expectation formation in the context of the 2024 US elections. To do so, we ran an online survey experiment with a representative sample of more than 1,100 Americans from January 16-18, 2025 – in the days leading up to the inauguration of Donald Trump. At the time of the survey, respondents’ future visions were not yet affected by any policies implemented by the incoming administration — at the same time, information about the designated cabinet and planned policies was readily available. Respondents in the treatment group actively engage in future thinking before reporting their economic expectations, while respondents in the control group do not. We stimulate future thinking by guiding respondents through a five-minute process of envisioning a specific scenario related to their personal consumption or income situation, employment, savings or housing one year after the inauguration. First results reveal substantial heterogeneity in future thinking skills and in the content of personal future visions. Preliminary treatment analyses show that future thinking affects inflation expectations and gasoline price predictions conditional on political affiliation, i.e., supporting the republican party. Instead of attenuating polarization in expectations, engaging in future thinking leads to more polarized beliefs. Finally, we find that engaging in future thinking indeed improves perceived vividness and closeness of the future. Next steps include a detailed analysis of the content of described future visions and further surveys after 6 months and 1 year of the presidency to shed light on interactions between information and visualization in the formation of polarized beliefs.Testing Superneutrality when Money Growth is Endogenous
Abstract
A model that tests long-run superneutrality while controlling for endogenous money growth is developed. We find that an exogenous permanent increase in inflation has a positive long-run effect on output for the United States. This finding rejects superneutrality in favor of a Mundell-Tobin effect based on Friedman's famous dictum that a permanent movement in "inflation is always and everywhere a monetary phenomenon." We prove our result is robust to a potentially important source of misspecification by extending an econometric technique to a novel setting. Using similar methods we show a once-popular simpler vector autoregression model that typically found positive output effects in low inflation countries had downward biased estimates due to endogenous money growth. While those estimates were statistically significant about half the time, we argue downward bias may explain why a relatively large number of positive estimates in low inflation countries were insignificant. Our overall conclusion is that Mundell-Tobin effects are more prevalent than was once perceived.JEL Classifications
- E3 - Prices, Business Fluctuations, and Cycles