Sentiments and economic activity: Evidence from US states

Jess Benhabib, Mark M. Spiegel

    Research output: Contribution to journalArticlepeer-review


    We examine whether sentiment influences aggregate demand by studying the relationship between the Michigan Survey expectations concerning national output growth and future economic activity at the state level. We instrument for local sentiments with political outcomes, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic. This instrument is strong in the first stage, and our results confirm a positive relationship between sentiments and future state economic activity that is robust to a battery of sensitivity tests.

    Original languageEnglish (US)
    Pages (from-to)715-733
    Number of pages19
    JournalEconomic Journal
    Issue number618
    StatePublished - 2019

    ASJC Scopus subject areas

    • Economics and Econometrics


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