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Media Coverage, Bayesian Learning and Heterogeneity of Inflation Expectations

【Authors】
ZHAO Linhai, LIU Xingzong
【WorkUnit】
Huaqiao University
【Abstract】

This paper introduces the Bayesian learning model to analyze the impact of macroeconomic variables and media coverage on the heterogeneity of inflation expectations of the public and experts in China. We estimate the influence of macroeconomic variables, including the actual inflation rate, squared inflation rate, GDP growth rate and inflation volatility, and media coverage variables, i.e., the volume, disagreement and tone of media coverage, on the heterogeneity of inflation expectations. The results of parameter estimation show that the heterogeneity of inflation expectations of both the public and the experts is affected by GDP growth rate and inflation volatility, while the actual inflation rate has little effect. The heterogeneity of the public depends on the disagreement and tone but not the volume of media coverage. And, media coverage hardly affects the heterogeneity of experts. Meanwhile, reports of deflation will increase the heterogeneity of both the public and the experts. Therefore, the government must regulate the authenticity and accuracy of media coverage, and monetary policy should consider the role of media and convey the policy goals through it, guide the public inflation expectations to enhance the effectiveness of monetary policy.

【KeyWords】
Heterogeneity of Expectations,Media Coverage,Inflation,Bayesian Learning Model


JEL:E31,E03,D84