Sentiment, Productivity, and Economic Growth

George Constantinides, Maurizio Montone, Valerio Potì and Stella Spilioti

No 31031, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous research finds correlation between sentiment and future economic growth, but disagrees on the channel that explains this result. In this paper, we shed new light on this issue by exploiting cross-country variation in sentiment and market efficiency. We find that sentiment shocks in G7 countries increase economic activity, but only temporarily and without affecting productivity. By contrast, sentiment shocks in non-G7 countries predict prolonged economic growth and a corresponding increase in productivity. The results suggest that sentiment can indeed create economic booms, but only in less advanced economies where noisy asset prices make sentiment and fundamentals harder to disentangle.

JEL-codes: F36 F43 G10 G30 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-big, nep-des, nep-fdg and nep-mac
Note: AP
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