Abstract Firstly, the paper introduces Bayesian theory into a Morris and Shin’s “Beauty-contest” model to study the correlation of media coverage and inflation from a micro perspective. The research demonstrates that through Bayesian posterior mechanism, media coverage causes market overreaction and thus enhances inflation. Furthermore, based on Baidu “media index” data, SVAR analysis shows inflation increase with media coverage, and media coverage contributes about 20% to inflation. Therefore, the study shows that government should communicate with the media when controlling inflation, on the other hand, the media should also be more relation and objective to avoid economic fluctuations when reporting inflation.
2016, Vol. 33 
