Stuck in the Seventies: Gas Prices and Macroeconomic Expectations

19 Pages Posted: 26 Oct 2018 Last revised: 14 Dec 2018

See all articles by Carola Binder

Carola Binder

Haverford College - Department of Economics

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Government of the United States of America - Council of Economic Advisors

Date Written: October 17, 2018

Abstract

Using daily consumer survey data, we analyze the transmission of gas prices to consumer beliefs and expectations about the economy. We exploit the high frequency and geographic disaggregation of our dataset to facilitate identification. Consumer sentiment becomes more pessimistic with rising real gas prices. Through a series of additional heterogeneity exercises, we find the effects are consistent with models of selective attention and personal experience. Our results also provide an additional amplification mechanism for the macroeconomic effects of energy price shocks.

Keywords: Consumer sentiment, macroeconomic expectations, selective attention, gas prices, behavioral macroeconomics

JEL Classification: E21, E32, E71, D12, D83, D84

Suggested Citation

Binder, Carola and Makridis, Christos, Stuck in the Seventies: Gas Prices and Macroeconomic Expectations (October 17, 2018). Available at SSRN: https://ssrn.com/abstract=3267721 or http://dx.doi.org/10.2139/ssrn.3267721

Carola Binder

Haverford College - Department of Economics ( email )

Haverford, PA 19041
United States

Christos Makridis (Contact Author)

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

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

Government of the United States of America - Council of Economic Advisors ( email )

Eisenhower Executive Office Building
17th and Pennsylvania Avenue, NW
Washington, DC 20502
United States

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