Consumer Sentiment and Spending in Extreme Events

Abstract

We examine tail dependence between consumer sentiment and spending during crises, focusing on COVID-19 and the Global Financial Crisis. Using copula models on U.S. monthly data from 2003–2024, we quantify extreme co-movements and find asymmetric tail dependence that intensifies during crises: upper-tail dependence rises to 0.35 post-pandemic, 3.5 times its pre-pandemic level, while the financial crisis shows stronger lower-tail dependence. A Bayesian VAR framework highlights the role of macroeconomic factors. The economic significance is noteworthy: extreme optimism corresponds to a 2.8 percentage-point increase in spending growth, and fiscal multipliers are amplified by 40–60% during sentiment rebounds. These results underscore the value of tail dependence analysis for stabilization policy and crisis-specific risk management.