Dancing in the Dark: Sentiment Shocks and Economic Activity

Maximilian Boeck, Zeno Enders, Michael Kleemann and Gernot Müller

No 12252, CESifo Working Paper Series from CESifo

Abstract: The business cycle is driven by expectations - some justified, some not - as documented by a host of studies. What is less clear are the conditions that make the economy susceptible to "sentiment shocks." In this paper, we document that uncertainty, as measured by forecaster disagreement, is essential. At times when disagreement is low, sentiment shocks hardly matter for economic activity but are fully absorbed by prices. If, instead, disagreement is high, they move activity with little impact on prices. We obtain these results based on time-series data and a theoretical account based on a New Keynesian model with dispersed information.

Keywords: sentiment shocks; noise shocks; animal spirits; business cycles; nowcast error; disagreement; dispersed beliefs (search for similar items in EconPapers)
JEL-codes: C32 C34 D84 E21 E23 E32 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifo.de/DocDL/cesifo1_wp12252.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12252

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().