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The role of sentiment in the economy: 1920 to 1934

Kabiri, Ali, James, Harold, Landon-Lane, John, Tuckett, David and Nyman, Rickard (2022) The role of sentiment in the economy: 1920 to 1934. Economic History Review. ISSN 0013-0117 (In Press)

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This paper investigates sentiment in the US economy from 1920 to 1934 using digitized articles from the Wall St Journal. We derive a monthly sentiment index and use a ten variable vector error correction model to identify sentiment shocks that are orthogonal to fundamentals. We show the timing and strength of these shocks and their resultant effects on the economy using historical decompositions. Intermittent impacts of up to fifteen percent on Industrial Production, ten percent on the S&P 500 and Bank loans and, thirty-seven basis points for the Credit risk spread, suggest a large role for sentiment.

Item Type: Article
Official URL:
Additional Information: © 2022 Economic History Society
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D89 - Other
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
Date Deposited: 06 Apr 2022 11:33
Last Modified: 07 Apr 2022 23:12

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