Research in progress

Morley, Nelson and Zivot (2003) show that the Beveridge-Nelson decomposition and an unrestricted unobserved-components model deliver the same cycle for U.S. real GDP once the covariance between trend and cycle innovations is freely estimated. We revisit this result in a narrow replication and then extend it in two directions. First, we repeat the univariate exercise over a longer sample ending in 2026. Second, we add labor-market and real-activity indicators that should be directly informative about the cycle. The narrow replication reproduces the equivalence between the Beveridge-Nelson and unrestricted unobserved-components decompositions in both samples. In the multivariate extension, the two gaps remain closely aligned, with a correlation of 0.995, and the estimated cycle displays persistent contractions around major U.S. recessions. We interpret these results as evidence that the volatile cycle in the unrestricted univariate model mainly reflects the limited cyclical information contained in GDP alone.

Theoretical work suggests that autonomous shifts in sentiment, beliefs, or expectations can have persistent and even permanent macroeconomic effects. This paper studies that possibility for aggregate consumption. Using monthly US data, we identify exogenous sentiment shocks with an external instrument based on mass shooting fatalities. We then trace their effects on consumption trend and cycle in a Bayesian VAR with a multivariate Beveridge–Nelson decomposition. We find that identified sentiment shocks have not only sizable cyclical effects, but also statistically significant and economically meaningful permanent effects on consumption. Variance decompositions further show that these shocks account for a substantial share of fluctuations in both cyclical consumption and consumption trend growth.

Newspapers are a key source of information shaping consumers’ views about inflation, reaching a much broader audience than central bank statements or press conferences. This paper asks whether consumers “hear” what the European Central Bank (ECB) communicates when its messages are transmitted through newspapers. We construct a novel newspaper-based proxy that captures both the frequency and tone of media coverage related to ECB communication and embed it in a recursive Bayesian Vector Autoregression framework. The results provide systematic evidence that newspaper reporting conveys the tone of ECB messages to the public and significantly affects consumers’ short-term inflation expectations. These findings highlight the newspaper channel as an important but often overlooked transmission mechanism of monetary communication.