How Persistent Are the Effects of Sentiment Shocks?

Jess Benhabib, Ben Shapiro and Mark Spiegel

FRBSF Economic Letter, 2018

Abstract: People?s feelings about the economy have been shown to be strongly connected to a state?s current economic health over short horizons. So, how well do such consumer sentiment measures coincide with economic growth over a longer period? Sentiment shocks are associated with large and statistically significant changes in state economic output over as long as a three-year horizon. While the sentiment shocks initially affect state consumption expenditures to a smaller degree, the impact tends to be more persistent, continuing as long as five years after the initial shock.

Date: 2018
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