The role of sentiment in the US economy: 1920 to 1934

Kabiri, Ali, James, Harold, Landon-Lane, John, Tuckett, David and Nyman, Rickard (2023) The role of sentiment in the US economy: 1920 to 1934. Economic History Review, 76 (1). 3 - 30. ISSN 0013-0117

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Abstract

This paper investigates the role of sentiment in the US economy from 1920 to 1934 using digitised articles from The Wall Street Journal. We derive a monthly sentiment index and use a 10-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 15 per cent on industrial production, 10 per cent on the S&P 500 and bank loans, and 37 basis points for the credit risk spread suggest a large role for sentiment.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14680289
Additional Information:	© 2022 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N12 - U.S.; Canada: 1913- N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S.; Canada: 1913- E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D89 - Other
Date Deposited:	06 Apr 2022 11:33
Last Modified:	14 Feb 2024 15:45
URI:	http://eprints.lse.ac.uk/id/eprint/114597

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