Does advertising stimulate sales or mainly deliver signals? A multivariate analysis

Abstract

The main purpose of this article is to empirically examine the Galbraithian hypothesis that advertising adjusts aggregate demand to the changing industrial development and consequently stimulates sales. The causal relations between sales and advertising are tested in the context of a vector autoregressive system using the US aggregate data over the post-Second World War period. Our empirical results fail to support the Galbraithian thesis, and suggest instead the presence of a potent reverse causality running from aggregate sales to advertising. We use the signalling theory to interpret our results.