The Causal Effect of News on Inflation Expectations

This paper studies the response of household inflation expectations to television news coverage of inflation. We analyze news data from CNN, Fox News, and MSNBC alongside a daily measure of inflation expectations. Using a local projection instrumental variables approach, we estimate the dynamic causal effect of inflation news coverage on household inflation expectations at a daily frequency. Increased media coverage of inflation raises expectations, with effects peaking within a few days and fading after approximately 10 days. Additionally, we document a key nonlinearity: release days with positive CPI surprises—i.e., inflation exceeding market expectations—lead to stronger expectation responses than release days with negative surprises.