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© National Institute of Economic and Social Research 2019

Discussion Paper - As part of Special Issue: Bio-psycho-social foundations of macroeconomics

Markets are a function of language: notes on a narrative economics

Douglas R. Holmes

25 February, 2019

Abstract

Narratives are under-theorised and until recently under-recognised as core variables influencing the speed and direction of changes in expectations and, therefore, as core macroeconomic variables that shape the policy processes of central banks. The author examines below how the thousands of micro-level narratives garnered on a regular basis by the Bank of England’s staff of regional agents can inform what Ricardo Reis and Alan Blinder (Understanding the Greenspan standard, 2005) term the “macroeconomic allegories” that influence monetary policy decision-making. The contacts that make up the ‘network’ perform descriptive, explanatory, and interpretive labor in situ putting words both to the ephemera of local expectations across the UK and to the rapidly changing competitive pressures unfolding in global markets. Internal studies have demonstrated that the micro-level narratives collected and scored by the agents provide the most reliable information on the future course of the British economy of any of the projections or forecasts available to the Bank.