Stuck in the Seventies: Gas Prices and Consumer Sentiment
38 Pages Posted: 26 Oct 2018 Last revised: 28 Jan 2020
Date Written: May 20, 2019
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: Suggested Citation