News or Animal Spirits? Consumer Confidence and Economic Activity: Redux

Barsky and Sims (2012, AER) demonstrated, via indirect inference, that confidence innovations can be
viewed as noisy signals about medium-term economic growth. They highlighted that the connection
between confidence and subsequent activity, such as consumption and output, is primarily driven by
news shocks about the future. We expand upon their research in two significant ways. First, we
incorporate the Great Recession and ZLB episodes, and second, we employ unique state-level data to
offer insights into how to interpret the relationship between consumer confidence and economic activity.
Our results are still consistent with the main finding of Barsky and Sims (2012) that this relationship is
predominantly driven by news about the future.