Adam Smith Business School

We provide evidence on narratives about the macroeconomy---stories individuals tell to make sense of economic phenomena---in the context of a historically notable rise in inflation. In surveys with experts and US households, we measure narratives in open-ended responses and quantitatively represent them as Directed Acyclical Graphs (DAGs). We document three main findings. First, narratives about the drivers of higher inflation rates are heterogeneous and differ fundamentally between experts and households. Households' narratives are more fragmented, focus mostly on the supply-side, and are more  likely to feature ideologically loaded explanations, such as government mismanagement or price gouging by greedy corporations. Second, households' narratives are predictive for their inflation expectations, and an additional experiment reveals that drawing households' attention to government spending causally affects their narratives and inflation expectations. Finally, in an experiment giving households incentives to search for and read news articles about inflation, we show that exposure to mass media seems to be a key source of heterogeneity in narratives and subsequent inflation expectations.