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How Persistent Are the Effects of Sentiment Shocks?

Author

Listed:
  • Jess Benhabib
  • Ben Shapiro
  • Mark M. Spiegel

Abstract

People?s feelings about the economy have been shown to be strongly connected to a state?s current economic health over short horizons. So, how well do such consumer sentiment measures coincide with economic growth over a longer period? Sentiment shocks are associated with large and statistically significant changes in state economic output over as long as a three-year horizon. While the sentiment shocks initially affect state consumption expenditures to a smaller degree, the impact tends to be more persistent, continuing as long as five years after the initial shock.

Suggested Citation

  • Jess Benhabib & Ben Shapiro & Mark M. Spiegel, 2018. "How Persistent Are the Effects of Sentiment Shocks?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00173
    as

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    References listed on IDEAS

    as
    1. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
    2. Christian Gillitzer & Nalini Prasad, 2016. "The Effect of Consumer Sentiment on Consumption," RBA Research Discussion Papers rdp2016-10, Reserve Bank of Australia.
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