We examine the interplay of global and domestic media sentiment and the global financial cycle with regard to effects on the exchange rates of emerging markets (EMs). We apply both linear and regime-switching models that employ various measures of media tone and media coverage and proxies for the global financial cycle. The results reveal a significant appreciation of the EMs' currencies in response to domestic and global sentiment shocks as well as the general and pure global factors (risky asset prices). We also identify an asymmetric effect in which the impacts of domestic and global sentiments and global financial cycles on EM currencies are greater in the case of positive media coverage.

This paper focuses on the uncertainty effect on consumer price inflation based on a panel of 82 advanced, emerging, and developing economies studied over a sample period running from 1995 to 2022. In contrast to the previous literature, we particularly control for the role of monetary policy credibility by considering the monetary control classification of Cobham (2021) and by measuring the degree of anchoring of survey inflation expectations. We argue that the interpretation of uncertainty as a negative demand shock is appealing from a theoretical perspective but is unlikely to reflect uncertainty dynamics for countries with high inflation and/or low monetary policy credibility. We find that higher uncertainty boosts inflation. However, this effect is significantly reduced (or even eliminated) by both a strong degree of monetary control and a strong anchoring of inflation expectations, illustrating that both factors are of key importance for the propagation of uncertainty shocks.

This paper analyses the effects of shocks to assessment among firms, measured by the global and local Producer Manager Index (PMI), on the economic activity in the manufacturing sector. We use monthly data from twenty countries over the period 2007–2022 and estimate an interacted panel VAR model, where the response of domestic industrial production to global and local PMI shocks depends on the country’s position in the global value chain (GVC). We find that countries located most upstream in the GVC are most strongly affected by shocks to domestic PMI. Surprisingly, the response to global PMI shocks is similar across the analysed economies.

This paper provides a new perspective on the formation of inflation expectations based on a sample of 1036 US residents. In our information provision experiment, the participants were provided with professional forecasts of different historical accuracy and complexity. Our novel experimental design allows us to assess the influence of cognitive uncertainty while controlling for the uncertainty associated with forecasts and priors. Consistent with cognitive uncertainty we find that more complex forecasts lead to smaller updates of inflation expectation.

This paper sheds new light on oil market dynamics by investigating the role of media-based sentiments in expectation building from several perspectives. We adopt both survey- and market-based expectation measures and analyze the effects of different sentiment indicators on (i) expectations, (ii) forecast errors, and (iii) disagreement among forecasters using data from 1998 to 2020, while also taking into account different media sources and nonlinear effects. We find that media sentiments affect expectations and survey-based uncertainty measures that extend beyond information embedded in past prices, with positive (negative) sentiment resulting in lower (higher) expected oil prices. Media coverage can also affect disagreement and tends to increase forecast errors. The adjustment of expectations to sentiment news tends to be stronger for negative news and conventional news sources compared to social media.JEL Classification: G40 Behavioral Finance: General; Q40 Energy: General; Q47 Energy Forecasting

We study temporary phases of exchange rate predictability in a two-regime threshold predictive regression framework allowing for persistent predictors. Regime switches are triggered by an observable transition variable which relates to media news, expectations, uncertainty and global financial conditions. As predictors for G7 currencies and effective US-Dollar exchange rates, we study various interest rate spreads, yield curve factors, uncertainty measures and deviations from fundamental exchange rate parities. Besides established uncertainty measures, we use a wide range of measures for media coverage and construct uncertainty measures from survey data as transition variables for the activation of the predictability regime. Our results emphasize that short recurring phases of significant predictability are characterized by nonlinear patterns. Phases of predictability are triggered by increased media coverage and high uncertainty with interest rate dynamics emerging as the most important predictor. We find broadly similar results for a contemporaneous threshold analysis where our regressors are allowed to affect the exchange rate in the same period. From a theoretical point of view, we argue that our empirical results are useful for the empirical identification of scapegoat effects and that media coverage and uncertainty affect the exchange rate via the heterogeneity of private signals and the precision of public signals.

This paper provides a new perspective on the expectations-building mechanism in foreign exchange markets. We analyze the role of expectations regarding macroeconomic fundamentals for expected exchange rate changes. Real-time survey data is assessed for 29 economies from 2002 to 2023, and expectations regarding GDP growth, inflation, interest rates, and current accounts are considered. Our empirical findings show that fundamentals expectations are more important over longer than shorter horizons. We find that an expected increase in GDP growth relative to the US leads to an expected appreciation of the domestic currency. In contrast, higher relative inflation expectations lead to an expected depreciation, a finding consistent with purchasing power parity. Our results also indicate that the expectation-building process differs systematically across pessimistic and optimistic forecasts, with the former paying more attention to fundamentals expectations. Finally, we also observe that fundamentals expectations have some explanatory power for forecast errors, especially for longer horizons. (c) 2024 The Author(s). Published by Elsevier B.V. on behalf of International Institute of Forecasters. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

This study contributes to the literature on political business cycles by assessing the effect of elections on growth expectations based on expert survey data instead of using actual performance data. We analyze the different roles opportunistic and partisan politics play in varieties of capitalistic systems as a source of heterogeneity. Our results show that expectations differ remarkably between Liberal and Coordinated Market Economies (LME vs. CME) even independent of election outcomes.

This paper provides a novel look at capital flow determinants by assessing the role of expectations and media sentiments. Analyzing eight emerging market economies, we assess the effects of macroeconomic expectations and disagreement among professionals and various media-based sentiment indicators. Our results show that survey and sentiment indicators which are available in real time contain useful information about capital flow dynamics which go beyond the effects of conventional push and pull factors for all countries we analyze. News sentiment related to the exchange rate have the strongest effects on capital flows. Finally, we identify substantial heterogeneity across countries.

This paper provides a new perspective on the economic implications of Environmental, Social, and Governance (ESG) ratings. Using data for 152 countries, we introduce a new country measure which reflects controversies regarding ESG performance based on media coverage in real time. We evaluate our measure at the country and global level and over different frequencies, and illustrate that global ESG controversy is positively related to established policy uncertainty measures, but also displays distinct dynamics. In a second step, we evaluate cross-country determinants and show that political determinants, the structure of the energy sector, and GDP per capita affect ESG controversies. Finally, we show that ESG controversery has significant effects on the global level.

We establish a new link between the cross-section of currency returns and survey-based forecasts. Using data from Consensus Economics, we show that surveys provide trading signals which are not entirely driven by standard benchmark trading strategies such as momentum, carry, or value. We evidence the sizable economic value of survey-based trading strategies, as they provide additional excess returns of up to two percentage points per year compared to benchmarks. This illustrates that professionals effectively explore available information and that their expertise can be used to diversify exchange rate portfolios. Our findings are robust against various tests and different currency portfolios structures.

We construct currency portfolios based on the premise that exchange rates gradually converge toward their equilibrium levels, yielding three key findings. First, this convergence can be leveraged to build profitable portfolios. Second, the slow rate of convergence over shorter horizons aligns with the sustained profitability of carry trade strategies, where investors borrow in low-yield currencies and invest in high-yield ones. Third, incorporating the predictive insights of equilibrium exchange rates can boost the performance of carry trade strategies.

We provide a novel perspective on the bitcoin market, investigating determinants of investor positions and their response to public information proxied by media sentiment indicators. We distinguish between investors by size and observe their respective behaviour concerning incoming information. We find that price dynamics and media sentiment lead to different decisions depending on the bitcoin portfolio size. Retail investors react strongly to incoming public information and media narratives, with their decisions strongly influenced by sentiment and media attention. Contrary to this, the response of large-scale investors to such information is much weaker because they arguably have different, non-public information and divergent investment objectives.

This paper analyzes how sentiment from different news sources affect energy prices for con- sumers. We assess the impact of sentiments derived from newspaper and social media on prices of gasoline, heating oil and natural gas from 2006 until 2020. Having shown that sentiments derived from social media and newspapers differ significantly in the first step, we show that newspaper sentiments have significant effects on prices in times of high news coverage while the effects of social media news are negligible. Finally, we illustrate that strong emotions in newspaper coverage have additional price effects and analyze a potential factor structure for out of sample forecasts.