Consumption, Sentiment, and Economic News

15 Pages Posted: 6 Oct 2012

See all articles by Martha Starr

Martha Starr

American University - Department of Economics

Date Written: October 2012

Abstract

This paper investigates the influence of economic news on consumer sentiment, and examines whether “news shocks” - changes in coverage that would not be expected from incoming data on economic fundamentals - have aggregate effects. Using monthly U.S. data and a structural vector autoregression, I find that (1) sentiment is affected by news shocks; (2) after filtering out effects of news shocks, shocks to sentiment still have positive effects on consumer spending; and (3) news shocks influence both spending and unemployment in significant, though transitory ways. These results are consistent with other evidence of a role of nonfundamental factors in aggregate fluctuations.

JEL Classification: E21, E32, D12

Suggested Citation

Starr, Martha, Consumption, Sentiment, and Economic News (October 2012). Economic Inquiry, Vol. 50, Issue 4, pp. 1097-1111, 2012, Available at SSRN: https://ssrn.com/abstract=2157843 or http://dx.doi.org/10.1111/j.1465-7295.2010.00346.x

Martha Starr (Contact Author)

American University - Department of Economics ( email )

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