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Consumer Confidence and Household Investment

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Abstract

Can consumer confidence account for the leading indicator property of household investment over the US business cycle? We find that it does. Consumer confidence leads household investment and housing starts by two and one quarter, respectively. Household investment increases in a persistent manner after a positive confidence shock. The responses of total hours-worked and output also show a persistent increase, and so do real house prices. Confidence shocks account for a substantial share of forecast error variation in household investment, hours-worked and output. They are not related to movements in future supply side fundamentals such as total factor productivity and the relative price of investment. Demand side forces originating in consumers' social and psychological factors are, therefore, relevant for household investment dynamics.

Suggested Citation

  • Hashmat Khan & Jean-François Rouillard & Santosh Upadhayaya, 2019. "Consumer Confidence and Household Investment," Carleton Economic Papers 19-06, Carleton University, Department of Economics, revised 04 Jan 2024.
    • Handle: RePEc:car:carecp:19-06
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    More about this item

    Keywords

    Consumer confidence; Household investment; Confidence Shocks; Business cycles;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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