Discussion Paper
No. 2019-18 | February 25, 2019
Douglas R. Holmes
Markets are a function of language: notes on a narrative economics
(Published in Bio-psycho-social foundations of macroeconomics)


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.

JEL Classification:

E47, E58, E71

Cite As

Douglas R. Holmes (2019). Markets are a function of language: notes on a narrative economics. Economics Discussion Papers, No 2019-18, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-18

Comments and Questions

Franco Bruni, Bocconi University - Invited reader comments
March 19, 2019 - 11:24
The paper informs the reader on a rather interesting research project which, if I have understood correctly, is now in an initial phase. Using the "narratives" collected by the BoE "network" to check how they influence and relate to monetary policy decisions is certainly a promising idea. However, in writing his 9 pages, the author looks extremely abstract: the reader cannot understand the specific methodology that the project will use. There is not one single example of how the research will proceed, not even a hypothetical example artificially constructed to provide some concreteness to the argument of the paper. The latter uses a fascinating rhetoric but keeps repeating the same basic concept. The only information it offers is about the size of the BoE network. There is no structure, no true conclusions, no clear account of the planned research, no data, no hint of what such a research effort could conclude. As for Brexit, there is a promising sentence at the beginning ("A wider claim " p.2) but the final section is fairly mysterious. My opinion is that the paper is, at best, an unfinished paper.

Douglas R. Holmes - Author´s response to Franco Bruni
March 19, 2019 - 11:28
The paper is very preliminary account of what our pilot project is investigating. It is a collection of “notes”—a thought piece—rather than a formal account of our research. It is incomplete by design, Our agreement with the BoE puts limits on what we can publish at the moment. We have been particularly careful to restrict our commentary on substantive issues during the Brexit negotiations. If Professor Bruni is interested, I would be very pleased to keep him updated as the project unfolds and I would welcome his commentary in the future.