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Ambiguous economic news and heterogeneity: What explains asymmetric consumption responses?

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We study information and consumption and whether consumers respond symmetrically to good and bad news. We define a news variable and show that it has explanatory power. We, then, test the hypothesis that consumers react more to bad news than to good news using the PSID to analyze the response of households’ consumption to news about aggregate future income.We find that our news variable helps one predict households’ consumption change and that consumption responses are larger following negative (bad) news than positive (good) news and suggest that observed asymmetric consumption responses could be due to agents’ aversion to ambiguous information.

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  • Luisa Corrado & Edgar Silgado-Gómez & Donghoon Yoo & Robert Waldmann, 2018. "Ambiguous economic news and heterogeneity: What explains asymmetric consumption responses?," CEIS Research Paper 443, Tor Vergata University, CEIS, revised 19 Sep 2019.
    • Handle: RePEc:rtv:ceisrp:443
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    More about this item

    Keywords

    Consumption; asymmetry; expectations; noisy information;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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