Narratives about the Macroeconomy
A new study examines how the stories people tell about the economy shape their expectations and responses to inflation.
In “Narratives about the Macroeconomy”, Peter Andre, Ingar Haaland, Christopher Roth, Mirko Wiederholt, and Johannes Wohlfart study how individuals make sense of economic developments during a historic surge in inflation. Using surveys with more than 10,000 U.S. households and 100 academic experts, the authors collect open-ended responses and map these narratives as structured representations.
The study finds that households’ narratives differ widely, are less detailed than those of experts, and often focus on supply-side explanations. They also frequently include politically charged interpretations. Through a series of experiments, the authors show that these narratives shape how people form inflation expectations and interpret new information.
Incorporating these insights into a New Keynesian model, the authors demonstrate that narratives play an important role in aggregating economic outcomes through their influence on expectations.