The social transmission of economic sentiment on consumption

Christos Makridis

European Economic Review, 2022, vol. 148, issue C

Abstract: This paper investigates the causal effect of economic sentiment on consumption using Gallup micro-data between 2008 and 2017. After showing that individuals update their beliefs about the national state of the economy in response to local housing and labor market fluctuations, I use the Facebook Social Connectedness Index (SCI) to construct an SCI-weighted index of housing price growth that captures individuals’ exposure to housing market shocks in connected zip codes. Using plausibly exogenous variation in individuals’ exposure to friends who experience heterogeneous housing price growth, I find that a standard deviation rise in economic sentiment is associated with a 17.3–24.6% rise in consumption of non-durables.

Keywords: Beliefs; Business cycles; Consumption; Economic sentiment; Social networks (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 E32 E71 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001350

DOI: 10.1016/j.euroecorev.2022.104232

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