Ambiguous Economic News and Heterogeneity: What Explains Asymmetric Consumption Responses?

28 Pages Posted: 6 Sep 2018

See all articles by Luisa Corrado

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance

Robert Waldmann

Universita di Roma Tor Vergata; National Bureau of Economic Research (NBER)

Donghoon Yoo

Korea Labor Institute

Date Written: August 9, 2018

Abstract

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

Suggested Citation

Corrado, Luisa and Waldmann, Robert and Yoo, Donghoon, Ambiguous Economic News and Heterogeneity: What Explains Asymmetric Consumption Responses? (August 9, 2018). CEIS Working Paper No. 443. Available at SSRN: https://ssrn.com/abstract=3229227 or http://dx.doi.org/10.2139/ssrn.3229227

Luisa Corrado (Contact Author)

University of Rome Tor Vergata Department of Economics and Finance ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Robert Waldmann

Universita di Roma Tor Vergata ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Donghoon Yoo

Korea Labor Institute ( email )

9th Flr., Korea Federation of Small Business Bldg
16-2 Youido-dong, Yongdungpo-gu
Seoul 150-010
Korea

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