Economic Reality, Economic Media and Individuals' Expectations

TL;DR

This study examines how economic media sentiment influences individuals' perceptions of economic conditions, demonstrating that media framing Granger-causes changes in public perception using machine learning on Swedish media data from 1993-2017.

Contribution

It develops a novel machine learning-based measure of economic media sentiment and shows its causal impact on individuals' economic expectations.

Findings

Media sentiment Granger-causes perceptions of macroeconomic conditions

A new sentiment index was constructed from Swedish media data

Media framing significantly influences public economic perceptions

Abstract

This paper investigates the relationship between economic media sentiment and individuals' expetations and perceptions about economic conditions. We test if economic media sentiment Granger-causes individuals' expectations and opinions concerning economic conditions, controlling for macroeconomic variables. We develop a measure of economic media sentiment using a supervised machine learning method on a data set of Swedish economic media during the period 1993-2017. We classify the sentiment of 179,846 media items, stemming from 1,071 unique media outlets, and use the number of news items with positive and negative sentiment to construct a time series index of economic media sentiment. Our results show that this index Granger-causes individuals' perception of macroeconomic conditions. This indicates that the way the economic media selects and frames macroeconomic news matters for individuals' aggregate perception of macroeconomic reality.