How to interpret consumer confidence shocks? State-level evidence

Using novel quarterly data of 29 U.S. states from 2005:I to 2015:IV, we revisit the link between consumer confidence and economic activity. We find that an innovation in consumer confidence is followed by a significant and persistent increase in consumption and output but a temporary decline in infl...

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Bibliographic Details
Published in:Economics letters 2024-11, Vol.244, p.111985, Article 111985
Main Authors: Choi, Sangyup, Jeong, Jaehun, Yoo, Donghoon
Format: Article
Language:English
Subjects:
Consumer confidence
Great recession
News shock
Panel VARs
State-level analysis
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Summary:Using novel quarterly data of 29 U.S. states from 2005:I to 2015:IV, we revisit the link between consumer confidence and economic activity. We find that an innovation in consumer confidence is followed by a significant and persistent increase in consumption and output but a temporary decline in inflation. These findings suggest that the supply-side (news) interpretation of consumer confidence receives more empirical support than the demand-side (animal spirit) interpretation in our sample. •We study the effects of consumer confidence shocks on the macroeconomy.•We use novel state-level panel data to alleviate endogeneity concerns.•Consumer confidence shocks are followed by a significant and persistent increase in consumption and output but a temporary decline in inflation.•The supply-side (news) interpretation receives more empirical support than the demand-side (animal spirit) interpretation.
ISSN:0165-1765
DOI:10.1016/j.econlet.2024.111985