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Forecasting Consumption in Real Time: The Role of Consumer Confidence Surveys

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  • Kajal Lahiri
  • George Monokroussos
  • Yongchen Zhao

Abstract

We study the role of consumer confidence surveys in forecasting personal consumption expenditure. We reexamine existing models of consumption and consumer confidence using both quarterly and monthly data in real time. Additionally, we produce forecasts of consumption expenditures with and without consumer confidence measures using a dynamic factor model and a real-time, jagged-edge data set. We establish in a robust way that consumer confidence significantly improves the accuracy of consumption forecasts. Furthermore, traditional macroeconomic theories seem to be unable to fully account for these results.

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File URL: http://www.albany.edu/economics/research/workingp/2012/lmz-consent.pdf
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Bibliographic Info

Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 12-02.

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Date of creation: 2012
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Handle: RePEc:nya:albaec:12-02

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Web: http://www.albany.edu/economics/research/workingp/index.shtml

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  1. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
  2. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  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. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 665-676, May.
  5. Eric M. Leeper, 1992. "Consumer attitudes: king for a day," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-15.
  6. 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.
  7. Lahiri, Kajal & Monokroussos, George, 2013. "Nowcasting US GDP: The role of ISM business surveys," International Journal of Forecasting, Elsevier, vol. 29(4), pages 644-658.
  8. E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 175-216.
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