Do Sunspots Reflect Consumer Confidence? An Empirical Investigation

Sharon Harrison

Eastern Economic Journal, 2005, vol. 31, issue 1, 55-73

Abstract: I examine a model with an indeterminate equilibrium in which business cycles are driven by sunspot shocks. I focus on the possibility that the sunspot shocks reflect consumer confidence. I compute an implied series of sunspot shocks using the intertemporal Euler equation and interpret them as changes in nonfundamental confidence. I then compute a measure of nonfundamental confidence using U.S. data and find a statistically significant correlation between the two series. I therefore conclude that the measured sunspots represent well the behavior of confidence in U.S. data.

Keywords: Business Cycle; Cycle; Equilibrium; Sunspot (search for similar items in EconPapers)
JEL-codes: E13 E32 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (6)

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