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The social transmission of economic sentiment on consumption

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  • Makridis, Christos A.

Abstract

This paper investigates the causal effect of economic sentiment on consumption using Gallup micro-data between 2008 and 2017. After showing that individuals update their beliefs about the national state of the economy in response to local housing and labor market fluctuations, I use the Facebook Social Connectedness Index (SCI) to construct an SCI-weighted index of housing price growth that captures individuals’ exposure to housing market shocks in connected zip codes. Using plausibly exogenous variation in individuals’ exposure to friends who experience heterogeneous housing price growth, I find that a standard deviation rise in economic sentiment is associated with a 17.3–24.6% rise in consumption of non-durables.

Suggested Citation

  • Makridis, Christos A., 2022. "The social transmission of economic sentiment on consumption," European Economic Review, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001350
    DOI: 10.1016/j.euroecorev.2022.104232
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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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