Business Cycle Narratives

75 Pages Posted: 27 Feb 2018

See all articles by Vegard Larsen

Vegard Larsen

Norges Bank

Leif Anders Thorsrud

Norges Bank; BI Norwegian Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 23, 2018


This article quantifies the epidemiology of media narratives relevant to business cycles in the US, Japan, and Europe (euro area). We do so by first constructing daily business cycle indexes computed on the basis of the news topics the media writes about. At a broad level, the most influential news narratives are shown to be associated with general macroeconomic developments, finance, and (geo-)politics. However, a large set of narratives contributes to our index estimates across time, especially in times of expansion. In times of trouble, narratives associated with economic fluctuations become more sparse. Likewise, we show that narratives do go viral, but mostly so when growth is low. While narratives interact in complicated ways, we document that some are clearly associated with economic fundamentals. Other narratives, on the other hand, show no such relationship, and are likely better explained by classical work capturing the market's animal spirits.

Keywords: Business cycles, Narratives, Dynamic Factor Model (DFM), Latent Dirichlet Allocation (LDA)

JEL Classification: C55, E32, E71, N10

Suggested Citation

Larsen, Vegard and Thorsrud, Leif Anders, Business Cycle Narratives (February 23, 2018). Norges Bank Working Paper 03/2018, Available at SSRN: or

Vegard Larsen

Norges Bank ( email )

P.O. Box 1179
Oslo, Oslo N-0107
+4745831155 (Phone)


Leif Anders Thorsrud (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

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