Media’s impact on inflation expectations

Inflation expectations are essential for understanding inflation dynamics. However, there is little knowledge regarding how these expectations are formed. Survey data observe different inflation expectations among groups, which violates the assumption of standard economic theory. In particular, all agents are assumed to be rational and therefore have the same expectations. As a response to this, Carroll (2003) suggests that media plays a vital role in explaining differences in inflation expectations. I build on this idea, and evaluate how different news topics affect the inflation gap between Norwegian households and financial economists. This paper includes various type of news reported in Dagens Næringsliv and find that different news topics affect the inflation gap between households and financial economists. Consequently, the results suggest that media impacts the inflation gap