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Title: Sentiments in the times of crisis Authors:  Antonio Conti - Banca d'Italia (Italy) [presenting]
Matteo Barigozzi - Università di Bologna (Italy)
Fabrizio Venditti - Queen Mary University of London (United Kingdom)
Abstract: The role of sentiment shocks on US economy are evaluated focusing on the impact on both financial and real variables.To understand whether these effects are constant over time we estimate a Structural VAR model with kernel smoothing to allow for time-variation in the transmission of structural shocks, providing the proper framework for analyzing the Great Financial Crisis of 2007-09. Identification relies on the maximization variance method which allows for disentangling sentiment shocks from financial ones, the latter modeled as stock prices, credit or house prices shocks. We show that sentiment shocks (i) display indeed time-varying effects on consumption, investment and output (ii) raise their effects during periods of crisis (iii) are at least as relevant as financial shocks for the US business cycle and (iv) they account for a large share of output and stock prices dynamics in the Global Financial Crisis.