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Stuck in the Seventies: Gas Prices and Consumer Sentiment

Author

Listed:
  • Carola Binder

    (Haverford College)

  • Christos Makridis

    (MIT Sloan School of Management)

Abstract

Using daily consumer survey data, we analyze the transmission of gas prices to consumer beliefs and expectations about the economy. We exploit the high frequency and geographic disaggregation of our data set to facilitate identification. Consumer sentiment becomes more pessimistic with rising gas prices. This effect is strongest for consumers who lived through the recessionary oil crises in the 1970s, consistent with models of learning from personal experience. For younger respondents, the sensitivity of sentiment to gas prices is stronger for college-educated respondents. Sensitivity is also higher in states with greater gas expenditures per capita.

Suggested Citation

  • Carola Binder & Christos Makridis, 2022. "Stuck in the Seventies: Gas Prices and Consumer Sentiment," The Review of Economics and Statistics, MIT Press, vol. 104(2), pages 293-305, May.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:2:p:293-305
    DOI: 10.1162/rest_a_00944
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    Cited by:

    1. Carola Binder, 2020. "Coronavirus Fears and Macroeconomic Expectations," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 721-730, October.
    2. Kilian, Lutz & Zhou, Xiaoqing, 2020. "Oil Prices, Gasoline Prices and Inflation Expectations: A New Model and New Facts," CEPR Discussion Papers 15168, C.E.P.R. Discussion Papers.
    3. Sebastian Link & Andreas Peichl & Christopher Roth & Johannes Wohlfart, 2023. "Attention to the Macroeconomy," ECONtribute Discussion Papers Series 256, University of Bonn and University of Cologne, Germany.
    4. Kilian, Lutz & Zhou, Xiaoqing, 2022. "The impact of rising oil prices on U.S. inflation and inflation expectations in 2020–23," Energy Economics, Elsevier, vol. 113(C).
    5. Anastasiou, Dimitris & Ftiti, Zied & Louhichi, Waël & Tsouknidis, Dimitris, 2023. "Household deposits and consumer sentiment expectations: Evidence from Eurozone," Journal of International Money and Finance, Elsevier, vol. 131(C).
    6. Conces Binder, Carola & Campbell, Jeffrey & Ryngaert, Jane, 2022. "Consumer Inflation Expectations: Daily Dynamics," MPRA Paper 117628, University Library of Munich, Germany.
    7. Carola Binder & Rupal Kamdar, 2022. "Expected and Realized Inflation in Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 131-156, Summer.
    8. Dietrich, Alexander M., 2023. "Consumption categories, household attention, and inflation expectations: Implications for optimal monetary policy," University of Tübingen Working Papers in Business and Economics 157, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    9. Makridis, Christos A., 2022. "The social transmission of economic sentiment on consumption," European Economic Review, Elsevier, vol. 148(C).
    10. Camacho, Maximo & Caro, Angela & Peña, Daniel, 2023. "What drives industrial energy prices?," Economic Modelling, Elsevier, vol. 120(C).

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