Ambiguous Economic News and Heterogeneity: What Explains Asymmetric Consumption Responses?
28 Pages Posted: 6 Sep 2018
Date Written: August 9, 2018
We study information and consumption and whether consumers respond symmetrically to good and bad news. We defi ne a news variable and show that it has explanatory power. We, then, test the hypothesis that consumers react more to bad news than to good news using the PSID to analyze the response of households' consumption to news about aggregate future income. We find that our news variable helps one predict households' consumption change and that consumption responses are larger following negative (bad) news than positive (good) news and suggest that observed asymmetric consumption responses could be due to agents' aversion to ambiguous information.
Keywords: Consumption, asymmetry, expectations, noisy information
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