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The Usefulness of Consumer Confidence Indexes in the United States

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Author Info
Brigitte Desroches
Marc-André Gosselin
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File URL: http://www.bankofcanada.ca/en/res/wp/2002/wp02-22.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 02-22.

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Length: 34 pages Abstract: This paper assesses the usefulness of consumer confidence indexes in forecasting aggregate consumer spending in the United States. The literature generally dismisses the relevance of these indexes. Without formal modelling, however, some researchers (Garner 1991 and Throop 1992) suggest that the indexes could be helpful during periods of major economic or political shocks. Such periods are usually associated with high volatility of consumer confidence, suggesting that large swings in confidence could be useful indicators of consumption. Our work distinguishes itself from previous research in that we provide a rigorous assessment of this possibility by estimating a consumption function in which only large variations of confidence can affect spending. Our results show that economists and forecasters should pay attention to consumer confidence, especially in times of elevated economic or political uncertainty.
Date of creation: 2002
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Handle: RePEc:bca:bocawp:02-22

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Related research
Keywords: Domestic demand and components; Economic models; International topics;

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Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2001-1), pages 175-216. [Downloadable!]
  2. Annabelle Mourougane & Moreno Roma, 2002. "Can confidence indicators be useful to predict short term real GDP growth?," Working Paper Series 133, European Central Bank. [Downloadable!]
    Other versions:
  3. Saul H. Hymans, 1970. "Consumer Durable Spending: Explanation and Prediction," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1970-2), pages 173-206. [Downloadable!]
  4. Matsusaka, John G & Sbordone, Argia M, 1995. "Consumer Confidence and Economic Fluctuations," Economic Inquiry, Oxford University Press, vol. 33(2), pages 296-318, April.
    Other versions:
  5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  6. Teresa Santero & Niels Westerlund, 1996. "Confidence Indicators and Their Relationship to Changes in Economic Activity," OECD Economics Department Working Papers 170, OECD, Economics Department. [Downloadable!]
  7. Nicholas S. Souleles, 2001. "Consumer Sentiment: Its Rationality and Usefulness in Forecasting Expenditure - Evidence from the Michigan Micro Data," NBER Working Papers 8410, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Jason Bram & Sydney Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 59-78. [Downloadable!]
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  9. Peter C.B. Phillips & Mico Loretan, 1989. "Estimating Long Run Economic Equilibria," Cowles Foundation Discussion Papers 928, Cowles Foundation, Yale University. [Downloadable!]
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  10. Eric M. Leeper, 1992. "Consumer attitudes: king for a day," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-15.
  11. Jeffrey C. Fuhrer, 1993. "What role does consumer sentiment play in the U.S. macroeconomy?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 32-44.
  12. Amano, Robert A. & van Norden, Simon, 1995. "Terms of trade and real exchange rates: the Canadian evidence," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 83-104, February. [Downloadable!] (restricted)
  13. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December. [Downloadable!] (restricted)
    Other versions:
  14. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
    Other versions:
  15. Michael C. & Pao-Lin Tien, 2000. "Economic Discomfort and Consumer Sentiment," Eastern Economic Journal, Eastern Economic Association, vol. 26(1), pages 1-8, Winter. [Downloadable!]
  16. Acemoglu, Daron & Scott, Andrew, 1994. "Consumer Confidence and Rational Expectations: Are Agents' Beliefs Consistent with the Theory?," Economic Journal, Royal Economic Society, vol. 104(422), pages 1-19, January. [Downloadable!] (restricted)
    Other versions:
  17. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
  18. C. Alan Garner, 1991. "Forecasting consumer spending: should economists pay attention to consumer confidence surveys?," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 57-71. [Downloadable!]
  19. Adrian W. Throop, 1992. "Consumer sentiment: its causes and effects," Economic Review, Federal Reserve Bank of San Francisco, pages 35-59. [Downloadable!]
  20. David F. Hendry & Neil R. Ericsson, 1989. "An econometric analysis of UK money demand in MONETARY TRENDS IN THE UNITED STATES AND THE UNITED KINGDOM by Milton Friedman and Anna J. Schwartz," International Finance Discussion Papers 355, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  21. Charles Steindel, 2001. "The effect of tax changes on consumer spending," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Dec. [Downloadable!]
  22. Sydney Ludvigson, 1996. "Consumer sentiment and household expenditure: reevaluating the forecasting equations," Research Paper 9636, Federal Reserve Bank of New York. [Downloadable!]
  23. Maria W. Otoo, 1999. "Consumer sentiment and the stock market," Finance and Economics Discussion Series 1999-60, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  24. Côté, Denise & Johnson, Marianne, 1998. "Consumer Attitudes, Uncertainty, and Consumer Spending," Working Papers 98-16, Bank of Canada. [Downloadable!]
  25. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Loría, Eduardo & Brito, L., 2004. "Is the Consumer Confidence Index a Sound Predictor of the Private Demand in the United States?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 1-15, Diciembre. [Downloadable!] (restricted)
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