RECESSION HEADLINE NEWS, CONSUMER SENTIMENT, THE STATE OF THE ECONOMYAND PRESIDENTIAL POPULARITY - A TIME-SERIES ANALYSIS 1989-1993

During the 1992 American presidential election, the media were accused of portraying the economy in a negative light, with both economic and political consequences for the country. Such criticism was based on a ssumptions concerning relationships among four variables: economic new s coverage, public perception of the state of the economy (consumer se ntiment), the actual state of the economy, and presidential popularity . This paper seeks to examine the relationships among all four variabl es in a way that accounts for inherent time series characteristics of the data including: potential non-stationarities (or tendencies for th e series to drift over time) and co-movements among the series. Hypoth eses concerning the nature and direction of influence among the four v ariables are proposed and time series analyses are conducted to test e ach hypothesis. We use recession-related headlines from the New York T imes to represent economic news. Each series is analyzed to isolate it s principal characteristics, and tests for co-movement (formally, coin tegration) between the series are conducted. Vector autoregression is used to model the joint determination of the series, and tests for Gra nger causality are conducted. The results show some causal evidence fo r a media effect: recession headlines were a significant prior influen ce on the determination of consumer sentiment in this study. There is some limited evidence of an adversarial press effect, wherein the pres ident's growing popularity rather than real world economic conditions appears to have led an increase in the number of recession headlines.