The Spread Nightmare: Financial Crises and Happiness

Abstract

The life satisfaction literature has boomed in the last decades since economists have access to more accurate databases allowing to test the impact of alternative variables on subjective well-being. A still unexplored issue is the relationship between financial crises and life satisfaction, due to the difficulty of collecting aggregate information at high frequency. Our proxies of life dissatisfaction used to overcome such difficulty are the normalized number of individuals searching the word happiness from Italy and from Germany on Google.

We propose a simple model to explain the relationship among life dissatisfaction, Google happiness search and the level of the spread between the 10-year yields of Italian and German government bonds. We empirically find a strongly significant and positive correlation between the spread and happiness, net of the impact of confounding controls, as predicted by our model. We find that the spread Granger causes the Google 'happiness' search, suggesting that financial crises decrease well-being.

Keywords: life satisfaction, financial crises, spread

JEL Classification: D31, D53, I31,G01