Can shifts in beliefs about the future alter the macroeconomic present? In a recent working paper we have studied how consumers, firms, financial markets and central banks adjust their expectations and modify their choices when given news of future technological progress. We were able to isolate these news from the signal in patents applications that was not already included in forecasts about the future of the economy contained in surveys compiled prior to the application filings. We find that news-induced changes in beliefs are powerful enough to enable economic expansions even if different economic agents process these types of signals in profoundly different ways. Collective actions prompted by a change in expectations about possible future technological progress can account for about 20% of the variation in current unemployment and aggregate consumption.
What’s in the News? Text-Based Confidence Indices and Growth Forecasts →
As the American playwright Arthur Miller wrote, “A good newspaper, I suppose, is a nation talking to itself.” Using text analysis and machine learning, we decided to put this to test – to find out whether newspaper copy could tell us about the national economy, and in particular, whether it can help us predict GDP growth.
The surprise in monetary surprises: a tale of two shocks →
Empirical identification of the effects of monetary policy requires isolating exogenous shifts in the policy instrument that are distinct from the systematic response of the central bank to actual or foreseen changes in the economic outlook. Because the same tools are used to both induce changes in the economy, and to react to them, distinguishing between cause and effect is a far from trivial matter. One popular way is to use surprises in financial markets to proxy for the shock. In a recent paper, I argue that markets are not able to distinguish the shocks from the systematic component of policy if their forecasts do not align with those of the central bank. I then develop a new measure of monetary shocks, based on market surprises but free of anticipatory effects and unpredictable by past information.