Together with Christian Conrad (University of Heidelberg) and Michael Weber (Purdue University), I wrote an article for ifo Schnelldienst for the issue on “Narratives as a tool of economic policy? How interpretive frameworks shape economic outcomes“. In our article, we summarize our research on the narratives concerning how inflation causally affects the stock market for a broader audience. Check it out here (in German):
Using survey data from the ZEW Financial Market Test during the 2022 high-inflation period, we explore which narratives professional forecasters use to describe the causal effects of inflation on stock market performance. While forecasters‘ quantitative inflation and return expectations align with their stated narratives, there’s considerable heterogeneity in which narrative they believe best captures the causal relationship. When forecasters receive new information about future inflation, their prior inflation expectations, combined with their chosen narrative, determine how they adjust their return expectations. Our study provides causal evidence that different narratives help explain the heterogeneity in professional forecasters‘ return expectations.
We thank the ifo Institute in Munich for the opportunity to contribute our research to this issue on this important and highly relevant topic of the role of economic narratives for expectation formation.
Comments are closed