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Sentiments and Economic Activity: Evidence from U.S. States

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  • Jess Benhabib
  • Mark M. Spiegel

Abstract

We examine whether sentiment influences aggregate demand by studying the relationship between the Michigan Survey expectations concerning national output growth and future economic activity at the state level. We instrument for local sentiments with political outcomes, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic. This instrument is strong in the first stage, and our results confirm a positive relationship between sentiments and future state economic activity that is robust to a battery of sensitivity tests.

Suggested Citation

  • Jess Benhabib & Mark M. Spiegel, 2017. "Sentiments and Economic Activity: Evidence from U.S. States," NBER Working Papers 23899, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23899
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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