Stuck in the Seventies: Gas Prices and Consumer Sentiment

38 Pages Posted: 26 Oct 2018 Last revised: 28 Jan 2020

See all articles by Carola Binder

Carola Binder

The University of Texas at Austin, TX, USA

Christos Makridis

Stanford University; Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia; The Gallup Organization; Arizona State University (ASU)

Date Written: May 20, 2019

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 gas prices. This effect is strongest for consumers who lived through the recessionary oil crises in the 1970s, consistent with models of learning from personal experience. For younger respondents, the sensitivity of sentiment to gas prices is stronger for college-educated respondents. Our results also provide an additional amplification mechanism for the macroeconomic effects of energy price changes.

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 Consumer Sentiment (May 20, 2019). Available at SSRN: https://ssrn.com/abstract=3267721 or http://dx.doi.org/10.2139/ssrn.3267721

Carola Binder

The University of Texas at Austin, TX, USA ( email )

United States

Christos Makridis (Contact Author)

Stanford University ( email )

367 Panama St
Stanford, CA 94305
United States

Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia ( email )

Nicosia, 2417
Cyprus

The Gallup Organization ( email )

Washington, DC 20004
United States

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

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