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Consumer Confidence and Economic Fluctuations

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Author Info
Matsusaka, John G
Sbordone, Argia M

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Abstract

If consumers become pessimistic about the state of the economy, can there be a slowdown in output even if their pessimism is not based on economic fundamentals? Recent macroeconomic models show the answer is yes if there are 'strategic complementarities' and multiple equilibria. The authors investigate the link between consumer confidence and economic fluctuations using vector autoregressions. In all models, after controlling for economic fundamentals, the hypothesis that consumers sentiment does not cause GNP (in the Granger sense) can be rejected. Variance decompositions suggest that consumer sentiment accounts for between 13 and 26 percent of the innovation variance of GNP. Copyright 1995 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 33 (1995)
Issue (Month): 2 (April)
Pages: 296-318
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Handle: RePEc:oup:ecinqu:v:33:y:1995:i:2:p:296-318

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  1. Dohmen, Thomas J & Falk, Armin & Huffman, David & Sunde, Uwe, 2006. "Seemingly Irrelevant Events Affect Perceptions and Expectations - The FIFA World Cup 2006 as a Natural Experiment," CEPR Discussion Papers 5851, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Seonghwan Oh & Michael Waldman, 2005. "The Index of Leading Economic Indicators as a Source of Expectational Shocks," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 75-95, Winter. [Downloadable!]
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  3. David L. Haugh, 2005. "The Influence Of Consumer Confidence And Stock Prices On The United States Business Cycle, 1953-2003," CAMA Working Papers 2005-03, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  4. Keen Meng Choy & Kenneth Leong & Anthony S. Tay, 2003. "Non-Fundamental Expectations and Economic Fluctuations: Evidence from Professional Forecasts," Departmental Working Papers wp0306, National University of Singapore, Department of Economics. [Downloadable!]
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  5. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2006. "Seemingly Irrelevant Events Affect Economic Perceptions and Expectations: The FIFA World Cup 2006 as a Natural Experiment," IZA Discussion Papers 2275, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Jonas Dovern & Christina Ziegler, 2008. "Predicting Growth Rates and Recessions. Assessing U.S. Leading Indicators Under Real-Time Conditions," Kiel Working Papers 1397, Kiel Institute for the World Economy. [Downloadable!]
  7. Ivan Roberts & John Simon, 2001. "What do Sentiment Surveys Measure?," RBA Research Discussion Papers rdp2001-09, Reserve Bank of Australia. [Downloadable!]
  8. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada. [Downloadable!]
  9. Lucia Dunn & Ida Mirzaie, 2004. "Turns in Consumer Confidence: An Information Advantage Linked To Manufacturing," Working Papers 04-03, Ohio State University, Department of Economics. [Downloadable!]
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  10. Huw Dixon & Ernesto Somma, . "Coordination and Equilibrium selection in mean defined supermodular games under payoff monotonic selection dynamics," Discussion Papers 99/37, Department of Economics, University of York. [Downloadable!]
  11. Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York. [Downloadable!]
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  12. Gwen Eudey & Roberto Perli, 1999. "Regime-switching in expectations over the business cycle," Working Papers 99-17, Federal Reserve Bank of Philadelphia. [Downloadable!]
  13. Pami Dua, 2004. "Analysis of Consumers' Perceptions of Buying Conditions for Houses," Working papers 127, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
  14. Bob McNabb & Karl Taylor, 2002. "Business Cycles and the Role of Confidence: Evidence from Europe," Discussion Papers in Economics 02/3, Department of Economics, University of Leicester. [Downloadable!]
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  15. Thomas A. Garrett & Rubén Hernández-Murillo & Michael T. Owyang, 2004. "Does consumer sentiment predict regional consumption?," Working Papers 2003-003, Federal Reserve Bank of St. Louis. [Downloadable!]
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  16. Xiao, Wei, 2003. "Explaining speculative expansions," Working Papers 2003-02, University of New Orleans, Department of Economics and Finance. [Downloadable!]
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