We examine whether sentiment influences aggregate demand by studying the relationship between the Michigan Survey expectations concerning national output growth and future economic activity at the state level. We instrument for local sentiments with political outcomes, positing that agents in...

We argue that recoveries from demand-driven recessions with expenditure cuts concentrated in services or non-durables will tend to be weaker than recoveries from recessions more biased towards durables. Intuitively, the smaller the bias towards more durable goods, the less the recovery is...