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Federal Reserve Bank of San Francisco
FRBSF Economic Letter
How Persistent Are the Effects of Sentiment Shocks?
Jess Benhabib
Ben Shapiro
Mark M. Spiegel
Abstract

People’s feelings about the economy have been shown to be strongly connected to a state’s current economic health over short horizons. So, how well do such consumer sentiment measures coincide with economic growth over a longer period? Sentiment shocks are associated with large and statistically significant changes in state economic output over as long as a three-year horizon. While the sentiment shocks initially affect state consumption expenditures to a smaller degree, the impact tends to be more persistent, continuing as long as five years after the initial shock.


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Jess Benhabib & Ben Shapiro & Mark M. Spiegel, "How Persistent Are the Effects of Sentiment Shocks?" , Federal Reserve Bank of San Francisco, FRBSF Economic Letter, number 22, 2018.
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