CONSUMPTION, SENTIMENT, AND ECONOMIC NEWS

Martha Starr

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Market Dynamics and Volatility

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 E21, E32, D12)

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2007Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach 1989The federal funds rate and the channels of monetary transmission 2005What are the effects of monetary policy on output? Results from an agnostic identification procedure 1998Monetary Policy Shocks: What Have We Learned and to What End?1986Alternative Explanations of the Money-Income Correlation 1999Chapter 2 Monetary policy shocks: What have we learned and to what end?2000Federal Reserve Information and the Behavior of Interest Rates 2004Testing for Indeterminacy: An Application to U.S. Monetary Policy

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2015Forecasting Consumption: the Role of Consumer Confidence in Real Time with many Predictors 2016Does consumer confidence affect durable goods spending during bad and good economic times equally?2016Does Consumer Confidence Forecast Household Saving and Borrowing Behavior? Evidence for Poland 2021Social media sentiment, model uncertainty, and volatility forecasting 2016Sentiments and Economic Activity: Evidence from U.S. States

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