A Century of Inflation Narratives | Hoover Institution

Quick Overview

Alexandra Zante's team defines an inflation narrative strictly as an explanation of the causes and/or effects of inflation, distinguishing it from mere description or news, and they operationalize this definition using trained large language models (LLMs) on a century of US newspaper text (1923-2025) to track the evolution and predictive power of these narratives.

Key Points: The research team defines an inflation narrative as a causal explanation of events, specifically focusing on the causes and/or effects of inflation, differentiating it from literary stories or simple descriptions. The methodology involves training a Llama 3.1 LLM on 2,000 manually annotated sentences from historical (1960-1980) and contemporary (2010-2023) periods to classify narratives in 4.2 million sentences from US newspapers (1923-2025). Descriptive analysis shows that pre-1980 narratives emphasized fiscal causes, whereas post-Volcker, supply and monetary causes gained prominence in media discussions. Newspaper narratives headquartered in Democratic-leaning areas focus on monetary causes and savings effects, while Republican-leaning areas focus on fiscal causes and cost of living effects. Inflation narratives show strong predictive power for household inflation expectations, especially for lower-income households, even when controlling for past realized inflation and news volume. Federal Reserve public communications tend to attenuate media narratives on average, although monetary narratives pass through most strongly; however, media narratives directly predict household expectations slightly more strongly than direct Fed communications. The researchers specifically track causes like fiscal, monetary, and supply shocks, and effects like interest rates, cost of living, and savings impacts, noting that 'rates' discussions pick up significantly post-1980.

Context: Alexandra Zante presented early-stage, highly interdisciplinary work involving computer scientists, computational linguists, and economists to analyze a century of inflation narratives found in US newspaper archives spanning 1923 to 2025. The core motivation stems from growing literature, including the work of Robert Shiller, suggesting narratives influence beliefs and policy, requiring a precise definition to operationalize textual data analysis.