Consumer Confidence and Yield Spreads in Europe
AbstractThis 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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Bibliographic InfoPaper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2005-11.
Date of creation: Feb 2005
Date of revision:
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
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-27 (All new papers)
- NEP-EEC-2005-06-27 (European Economics)
- NEP-FIN-2005-06-27 (Finance)
- NEP-MAC-2005-06-27 (Macroeconomics)
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