News Media and International Fluctuations
We develop a multi-country multi-sector model with global value chains and informational frictions. Producers in a sector do not perfectly observe shocks to other countries and sectors, and their output decisions respond to beliefs about the productivity innovations worldwide. To discipline the agents' information sets, we collect new quarterly data containing the frequencies of country-industry-specific economic news reports by leading newspapers in the G7 plus Spain. Newspapers in each country publish articles on select events in both domestic and partner-country sectors, and not every event is reported worldwide. We show in reduced-form regressions that (i) greater news coverage is associated with smaller GDP forecast errors; and (ii) sectors more covered in the news exhibit greater business cycle comovement, even controlling for their trade intensity. We then use the news coverage data to discipline the key parameters in the quantitative model---the precision of the public and private signals about country-sector productivities. We find that noise shocks about TFP throughout the global value chain can be a quantitatively important source of international GDP comovement. Furthermore, these shocks would appear as correlated labor wedges in standard models without dispersed information.