The role of sentiment in the US economy: 1920 to 1934

Ali Kabiri, Harold James, John Landon-Lane, David Tuckett and Rickard Nyman

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper investigates the role of sentiment in the US economy from 1920 to 1934 using digitised articles from The Wall Street Journal. We derive a monthly sentiment index and use a 10-variable vector error correction model to identify sentiment shocks that are orthogonal to fundamentals. We show the timing and strength of these shocks and their resultant effects on the economy using historical decompositions. Intermittent impacts of up to 15 per cent on industrial production, 10 per cent on the S&P 500 and bank loans, and 37 basis points for the credit risk spread suggest a large role for sentiment.

Keywords: algorithmic text analysis; business sentiment; Great Depression; US interwar economy; EP/P016847/1; ESRC-NIESR Rebuilding Macroeconomics network (search for similar items in EconPapers)
JEL-codes: D89 E32 N12 N22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-02-01
New Economics Papers: this item is included in nep-his
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Published in Economic History Review, 1, February, 2023, 76(1), pp. 3 - 30. ISSN: 0013-0117

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:114597

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