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Ambiguous economic news and heterogeneity: What explains asymmetric consumption responses?

Luisa Corrado (), Edgar Silgado-Gómez (), Donghoon Yoo () and Robert Waldmann ()
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Edgar Silgado-Gómez: University of Rome "Tor Vergata", http://www.ceistorvergata.it
Donghoon Yoo: Korea Labor Institute

No 443, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We study information and consumption and whether consumers respond symmetrically to good and bad news. We define a news variable and show that it has explanatory power. We, then, test the hypothesis that consumers react more to bad news than to good news using the PSID to analyze the response of households’ consumption to news about aggregate future income.We find that our news variable helps one predict households’ consumption change and that consumption responses are larger following negative (bad) news than positive (good) news and suggest that observed asymmetric consumption responses could be due to agents’ aversion to ambiguous information.

Keywords: Consumption; asymmetry; expectations; noisy information (search for similar items in EconPapers)
JEL-codes: C10 C65 C32 E32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2018-08-09, Revised 2019-09-19
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