Sentiments and Economic Activity: Evidence from US States

Jess Benhabib and Mark Spiegel

The Economic Journal, 2019, vol. 129, issue 618, 715-733

Abstract: We examine whether sentiment influences aggregate demand by studying the relationship between the Michigan Survey expectations concerning national output growth and future economic activity at the state level. We instrument for local sentiments with political outcomes, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic. This instrument is strong in the first stage, and our results confirm a positive relationship between sentiments and future state economic activity that is robust to a battery of sensitivity tests.

Date: 2019
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Related works:
Working Paper: Sentiments and Economic Activity: Evidence from U.S. States (2017)
Working Paper: Sentiments and Economic Activity: Evidence from U.S. States (2016)
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