Working Paper: NBER ID: w15049
Authors: Robert B. Barsky; Eric R. Sims
Abstract: Innovations to measures of consumer confidence convey incremental information about economic activity far into the future. Comparing the shapes of impulse responses to confidence innovations in the data with the predictions of a calibrated New Keynesian model, we find little evidence of a strong causal channel from autonomous movements in sentiment to economic outcomes (the "animal spirits" interpretation). Rather, these impulse responses support an alternative hypothesis that the surprise movements in confidence reflect information about future economic prospects (the "information" view). Confidence innovations are best characterized as noisy measures of changes in expected productivity growth over a relatively long horizon.
Keywords: consumer confidence; animal spirits; macroeconomic activity; news shocks
JEL Codes: E20; E30; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer confidence innovations (D12) | Future economic activity (E66) |
| Consumer confidence innovations (D12) | Consumption (E21) |
| Consumer confidence innovations (D12) | GDP (E20) |
| Confidence innovations (O39) | Expected productivity growth (O49) |
| Animal spirits interpretation (E32) | Economic activity (E29) |