The Effect of Economic Sentiment on Consumption: Evidence from Social Networks

54 Pages Posted: 28 Dec 2017 Last revised: 1 Dec 2020

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: January 26, 2019

Abstract

This paper investigates the causal effect of economic sentiment on consumption using micro-data between 2008 and 2017. After showing that individuals update their beliefs about the national state of the economic in response to local housing and labor market fluctuations, I use the Social Connectedness Index (SCI) to construct an SCI-weighted index of housing price growth that captures individuals' exposure to housing market shocks in friends' zipcodes. Using plausibly exogenous variation in individuals' exposure to friends who experience heterogeneous housing price growth, I find that a standard deviation rise in economic sentiment is associated with a 0.16-0.22% rise in consumption of non-durables.

Keywords: Beliefs, Business Cycles, Consumption, Economic Sentiment, Social Networks

JEL Classification: D12, D14, E21, E32, G41

Suggested Citation

Makridis, Christos, The Effect of Economic Sentiment on Consumption: Evidence from Social Networks (January 26, 2019). Available at SSRN: https://ssrn.com/abstract=3092489 or http://dx.doi.org/10.2139/ssrn.3092489

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
209
Abstract Views
1,734
rank
167,158
PlumX Metrics