Diana Petrova, Researcher of the Monetary Policy Department at the Gaidar Institute, spoke about new approaches to analyzing text data using artificial intelligence. In her commentary, she explained in detail how Russians' digital footprints help predict economic crises and inflation.
The expert noted that traditional economic theory ignores the role of narratives in decision-making, assuming an objective environment and independence of people's actions from the social context. However, according to Diana Petrova, incorporating a narrative approach into modern research helps explain abrupt shifts in collective behavior, such as financial market panics or waves of optimism/pessimism. She also highlighted the asymmetry in people's reactions to news: negative narratives have a stronger influence on economic decisions, which is linked both to fear of significant losses amid economic instability and to media's preference for covering bad news.
The expert emphasized that in the context of digital economy, online data is becoming a key source for measuring these narratives, surpassing traditional surveys numerically, timeliness, and detail. Online data analysis allows to identify viral narratives from news feeds or search queries (for example, about recessions, monetary policy, geopolitical risks) and use them to construct indices that closely correlate with the dynamics of industrial production, employment, stock markets, and inflation. Incorporating quantitative narrative indicators improves the predictive power of macroeconomic models especially during periods of instability and allows for development of more effective communication strategies by government agencies and central banks.
Narratives play a key role in the transmission of economic shocks. Research shows that narratives associated with central bank communications significantly influence consumer confidence and financial markets. The expert explained that this suggests that the public perception of information is no less important than its formal content.
Diana Petrova especially focused on the gap in information perception between experts and ordinary households. Narratives about the causes of inflation (demand, supply or politicized explanations) shape household expectations, which can trigger an inflationary spiral. The perceived stability of the effects of the inflation narrative in the media determines the dynamics of inflation expectations. The media act as a key channel for disseminating and increasing attention to these narratives. Households tend to rely on simplified, politicized, and often non-theoretical narratives (e.g., "corporate greed"), while experts and specialized economic media focus on economically sound narratives.
General news outlets shape narratives close to people’s perception, but do not always align with expert assessments. Differences in coverage of economic topics between public and specialized news sources contribute to a widening gap in expectations between the public and experts. The heterogeneity in perception of economic narratives by the public and the expert community complicates central banks’ communication and reduces the effectiveness of monetary policy.