a column by Laura Nowzohour and Livio Stracca for VOX: CEPR’s Policy Portal
At an intuitive level, economists and non-economists alike find it plausible that economic sentiment and economic developments are related. This column surveys recent theoretical and empirical work on the role of sentiment as a driver of the business cycle. Sentiment measures are found to be weakly correlated at the country level, but highly correlated across countries. Further, sentiment seems most closely correlated with economic and financial variables, and tends to be forward looking.
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