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The downside of being upbeat: The effects of consumer optimism on real economic activity

Edda Claus ()

LCERPA Working Papers from Laurier Centre for Economic Research and Policy Analysis

Abstract: Using a quarterly consumer survey, we propose two novel measures of consumer optimism, ex ante optimism and ex post optimism. We demonstrate that excessive optimism about future family finances impacts the real economy. The excessive optimism (ex ante optimism) compels consumers to save less and borrow more, putting upward pressure on consumption growth. When family finances improve persistently less than expected (ex post optimism), consumers cut back on credit and save more which puts downward pressure on consumption growth. This saving and borrowing channel of the optimism bias is robust to age and income.

Keywords: Cognitive Bias; Saving; Borrowing; Consumption; Expectations Survey Data (search for similar items in EconPapers)
JEL-codes: E71 D12 D14 D84 (search for similar items in EconPapers)
Date: 2019-05-01, Revised 2019-05-01
New Economics Papers: this item is included in nep-bec
Note: LCERPA Working Paper No. 2019-1. Online appendix is available at http://www.lcerpa.org/public/papers/LCERPA_2019_1_onlineappendix.pdf
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Persistent link: https://EconPapers.repec.org/RePEc:wlu:lcerpa:0117

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