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Consumer Sentiment and Australian Consumer Spending

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  • Joanne Loundes

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Rosanna Scutella

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

There is a growing literature that seeks to analyse the relationship between consumer sentiment and economic variables, primarily because of the pervasive belief that consumers' opinions and expectations can influence the direction of-or signal changes in the direction of-the economy. There has been little previous empirical work on Australian consumer sentiment, either in determining its explanatory power, or examining the factors that influence consumer sentiment. This research aims to fill part of this gap by providing a clearer understanding of the relationship between consumer attitudes and 'real' economic variables. Specifically, the predictive power of the consumer sentiment index for consumption will be examined using the methods proposed in Carroll, Fuhrer and Wilcox (1994). Private consumption expenditure accounts for a large proportion of GDP; hence, early detection of possible shifts in consumer spending could assist policy makers in smoothing out the business cycle. Our results suggest that the causal relationship between consumption and sentiment in Australia is more complicated than what Carroll et al suggest, and that the behaviour of consumption in Australia looks more like the permanent income hypothesis than it does in the US.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2000n21.

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Length: 19 pages
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:iae:iaewps:wp2000n21

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
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Web page: http://www.melbourneinstitute.com/
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References

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  1. John Y. Campbell & N. Gregory Mankiw, 1990. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  2. repec:fth:harver:1435 is not listed on IDEAS
  3. Sydney Ludvigson & Charles Steindel, 1998. "How important is the stock market effect on consumption?," Research Paper 9821, Federal Reserve Bank of New York.
  4. 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.
  5. Otto, Glenn & Voss, Graham M., 1995. "Consumption, external assets and the real interest rate," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 471-494.
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Cited by:
  1. Akhtar, Shumi & Faff, Robert & Oliver, Barry & Subrahmanyam, Avanidhar, 2011. "The power of bad: The negativity bias in Australian consumer sentiment announcements on stock returns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1239-1249, May.
  2. W. Anthony Bryant & Joseph Macri, 2005. "Does sentiment explain consumption?," Journal of Economics and Finance, Springer, vol. 29(1), pages 97-110, March.
  3. Dudek, SÅ‚awomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
  4. Ivan Roberts & John Simon, 2001. "What do Sentiment Surveys Measure?," RBA Research Discussion Papers rdp2001-09, Reserve Bank of Australia.
  5. Khoon Lek Goh, 2003. "Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?," Treasury Working Paper Series 03/22, New Zealand Treasury.

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