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On the dynamics of U.S. consumer sentiment and economic policy assessment

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  • Hamid Baghestani
  • Polly Palmer
Abstract
We utilize the Michigan Surveys of Consumers data to first investigate the dynamic relationship between consumers’ assessment of current and future economic conditions (Index of Current Economic Conditions (ICC) and Index of Consumer Expectations (ICE)), and then examine how these assessments are influenced by deterioration/improvement in consumers’ appraisal of economic policies of the government (GP). We further assess how deterioration/improvement in ICC and ICE influences GP. For 1978–2015, our findings first indicate that ICC and ICE are cointegrated and both respond to disequilibrium to restore the long-run equilibrium relationship. Second, deterioration in GP results in deterioration in both ICC and ICE. Improvement in GP, however, results in improvement in ICE with no impact on ICC. Third, deterioration in both ICC and ICE results in deterioration in GP. Improvement in ICE results in improvement in GP, but improvement in ICC has no impact on GP. The observed asymmetries are in line with ‘negativity bias’, whereby people tend to give more weight to negative events than to positive ones.

Suggested Citation

  • Hamid Baghestani & Polly Palmer, 2017. "On the dynamics of U.S. consumer sentiment and economic policy assessment," Applied Economics, Taylor & Francis Journals, vol. 49(3), pages 227-237, January.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:3:p:227-237
    DOI: 10.1080/00036846.2016.1194964
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    References listed on IDEAS

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    Cited by:

    1. Wadud, Mokhtarul & Ali Ahmed, Huson Joher & Tang, Xueli, 2020. "Factors affecting delinquency of household credit in the U.S.: Does consumer sentiment play a role?," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    2. Hamid Baghestani & Sehar Fatima, 2021. "Growth in US Durables Spending: Assessing the Impact of Consumer Ability and Willingness to Buy," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(1), pages 55-69, April.
    3. Baghestani, Hamid, 2019. "An analysis of vehicle-buying attitudes of US consumers," Research in Transportation Economics, Elsevier, vol. 75(C), pages 62-68.
    4. Kazım Berk Küçüklerli & Veysel Ulusoy, 2024. "Sentiment-Driven Exchange Rate Forecasting: Integrating Twitter Analysis with Economic Indicators," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(3), pages 1-4.
    5. Baghestani, Hamid, 2021. "Predicting growth in US durables spending using consumer durables-buying attitudes," Journal of Business Research, Elsevier, vol. 131(C), pages 327-336.
    6. Marwane El Alaoui & Elie Bouri & Nehme Azoury, 2020. "The Determinants of the U.S. Consumer Sentiment: Linear and Nonlinear Models," IJFS, MDPI, vol. 8(3), pages 1-13, July.

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