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Consumer confidence and household investment

Author

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  • Hashmat Khan
  • Jean‐François Rouillard
  • Santosh Upadhayaya

Abstract

Can consumer confidence account for the leading indicator property of household investment (HI) over the US business cycle? We find that it does. Consumer confidence leads HI and housing starts by two and one‐quarter, respectively. Household investment increases persistently after a positive confidence shock, and so do total hours worked, output, and real house prices. Quantitatively, confidence shocks account for a substantial share of the forecast error variation in these variables. They are also unrelated to future supply‐side fundamentals. Demand‐side forces, originating from consumers' social and psychological factors, are therefore relevant to HI dynamics.

Suggested Citation

  • Hashmat Khan & Jean‐François Rouillard & Santosh Upadhayaya, 2026. "Consumer confidence and household investment," Economic Inquiry, Western Economic Association International, vol. 64(2), pages 641-662, April.
    • Handle: RePEc:bla:ecinqu:v:64:y:2026:i:2:p:641-662
    DOI: 10.1111/ecin.70029
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    References listed on IDEAS

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