NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sentiments and Economic Activity: Evidence from U.S. States

Jess Benhabib, Mark M. Spiegel

NBER Working Paper No. 23899
Issued in October 2017
NBER Program(s):   EFG

We examine whether sentiment influences aggregate demand by studying the relationship between the Michigan Survey expectations concerning national output growth and future economic activity at the state level. We instrument for local sentiments with political outcomes, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic. This instrument is strong in the first stage, and our results confirm a positive relationship between sentiments and future state economic activity that is robust to a battery of sensitivity tests.

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Document Object Identifier (DOI): 10.3386/w23899

 
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