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American Economic Review: Vol. 102 No. 4 (June 2012)

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Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence

Article Citation

Barsky, Robert B., and Eric R. Sims. 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence." American Economic Review, 102(4): 1343-77.

DOI: 10.1257/aer.102.4.1343

Abstract

Innovations to consumer confidence convey incremental information about economic activity far into the future. Does this reflect a causal effect of animal spirits on economic activity, or news about exogenous future productivity received by consumers? Using indirect inference, we study the impulse responses to confidence innovations in conjunction with an appropriately augmented New Keynesian model. While news, animal spirits, and pure noise all contribute to confidence innovations, the relationship between confidence and subsequent activity is almost entirely reflective of the news component. Confidence innovations are well characterized as noisy measures of changes in expected productivity growth over a relatively long horizon. (JEL D12, D83, D84, E12)

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Authors

Barsky, Robert B. (U MI)
Sims, Eric R. (U Notre Dame)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D83: Search; Learning; Information and Knowledge; Communication; Belief
D84: Expectations; Speculations
E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian


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