Consumer confidence as a predictor of consumption spending: evidence for the United States and the euro area
AbstractFor most academics and policy makers, the depth of the 2007-09 financial crisis, its longevity and its impacts on the real economy resulted from an erosion of confidence. This paper proposes to assess empirically the link between consumer sentiment and consumption expenditures for the United States and the euro area. It shows under which circumstances confidence indicators can be a good predictor of household consumption even after controlling for information in economic fundamentals. Overall, the results show that the consumer confidence index can be in certain circumstances a good predictor of consumption. In particular, out-of-sample evidence shows that the contribution of confidence in explaining consumption expenditures increases when household survey indicators feature large changes, so that confidence indicators can have some increasing predictive power during such episodes. Moreover, there is some evidence of a "confidence channel" in the international transmission of shocks, as U.S. confidence indices lead consumer sentiment in the euro area. JEL Classification: C32, E17, F37, F42
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1349.
Date of creation: Jun 2011
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Other versions of this item:
- Stephane Dees & Pedro Soares Brinca, 2013. "Consumer confidence as a predictor of consumption spending: Evidence for the United States and the Euro area," Economie Internationale, CEPII research center, issue 134, pages 1-14.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-18 (All new papers)
- NEP-CBA-2011-06-18 (Central Banking)
- NEP-EEC-2011-06-18 (European Economics)
- NEP-FOR-2011-06-18 (Forecasting)
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.:
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