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The conditioned impact of recession news: A time-series analysis of economic communication in the United States, 1987-1996

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2002-03-01
Wu, HD
Stevenson, RL
Chen, HC
Güner, Zehra Nuray
This study examined the complex relationships among recession news, the state of the economy, and people's perceptions toward the economy from January 1987 through March 1996 using trivariate vector autoregression (VAR) analysis. Most of the time-series variables were found to have structural changes during this time frame. With the help of the Chow test, the researchers were able to determine January 1991 as the cut-off point to divide the entire period into two: downturn period and recovery period. The relationships among these three time-series were found to be dramatically different across the two distinct periods. The paper concludes that: (1) the situational factor (different states of economy) played a crucial role in determining how the public evaluates the economy; (2) the extent to which recession news' impact on people's assessment of the economy depended on different economic circumstances; (3) news coverage responded differently across these two distinct periods but, in the long run, followed the economic reality; and (4) the public's sentiments toward the economy can predict economic performance.