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Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence

Listed author(s):
  • Robert B. Barsky
  • Eric R. Sims

Innovations to measures of consumer confidence convey incremental information about economic activity far into the future. Comparing the shapes of impulse responses to confidence innovations in the data with the predictions of a calibrated New Keynesian model, we find little evidence of a strong causal channel from autonomous movements in sentiment to economic outcomes (the "animal spirits" interpretation). Rather, these impulse responses support an alternative hypothesis that the surprise movements in confidence reflect information about future economic prospects (the "information" view). Confidence innovations are best characterized as noisy measures of changes in expected productivity growth over a relatively long horizon.

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File URL: http://www.nber.org/papers/w15049.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15049.

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Date of creation: Jun 2009
Publication status: published as Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-77, June.
Handle: RePEc:nbr:nberwo:15049
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