Do Changes in the Stock Market Affect Consumer and Business Confidence?
Abstract: I find that measures of consumer and business confidence respond to stock market surprises. My evidence points to a confidence channel from financial conditions to the real economy. By signaling strong future incomes and profits, high equity valuations boost consumer and business confidence, which in turn stimulates real spending today. These relationships highlight a risk that the recent stock market decline could sap confidence, with adverse effects on real activity.
JEL Classification: G10;
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of Kansas City
Part of Series: Macro Bulletin
Publication Date: 2019-01-09
Issue: January 9, 2019