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Consumer Confidence and Yield Spreads in Europe

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Author Info
Eva Ferreira () (Universidad del País Vasco)
María Isabel Martínez () (Universidad de Murcia)
Eliseo Navarro () (Universidad de Castilla La Mancha)
Gonzalo Rubio () (Universidad del País Vasco)

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Abstract

This paper shows the extraordinary capacity of yield spreads to anticipate consumption growth as proxy by the Economic Sentiment Indicator elaborated by the European Commission in order to predict turning points in business cycles. This new evidence complements the well known results regarding the usefulness of the slope of the term structure of interest rates to predict real economic conditions and, in particular, recessions by using a direct measure of expectations. A linear combination of European yield spreads explains a surprising 93.7% of the variability of the Economic Sentiment Indicator. Yield spreads seem to be a key determinant of consumer confidence in Europe.

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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 200511.

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Date of creation: 22 Jun 2005
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Handle: RePEc:ehu:dfaeii:200511

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Postal: Dpto. de Fundamentos del Análisis Económico II, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: Economic Sentiment Indicator yield spreads consumer confidence expected real activi

Other versions of this item:

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates

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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. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June. [Downloadable!] (restricted)
  2. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring. [Downloadable!] (restricted)
  3. 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.
  4. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June. [Downloadable!] (restricted)
    Other versions:
  5. Jonathan A. Parker, 2003. "Consumption Risk and Expected Stock Returns," American Economic Review, American Economic Association, vol. 93(2), pages 376-382, May. [Downloadable!] (restricted)
    Other versions:
  6. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, 07. [Downloadable!] (restricted)
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  7. Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December. [Downloadable!] (restricted)
  8. Arturo Estrella & Frederic S. Mishkin, 1996. "Predicting U.S. recessions: financial variables as leading indicators," Research Paper 9609, Federal Reserve Bank of New York. [Downloadable!]
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  9. Fabio Moneta, 2003. "Does the yield spread predict recessions in the euro area?," Working Paper Series 294, European Central Bank. [Downloadable!]
  10. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
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