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Do consumer-confidence indexes help forecast consumer spending in real time?

  • Croushore, Dean

Could a researcher or policy analyst use data reported from surveys of consumer confidence to improve forecasts of consumer spending? This issue has been examined in the literature previously, which reached the conclusion that consumer confidence helped improve the forecasts slightly. But that research was based on final, revised data and thus did not use the data that would have been available to forecasters in real time. This paper remedies that shortcoming, using the Real-Time Data Set for Macroeconomists to analyze the quality of forecasts made with indexes of consumer confidence. The main finding is that the indexes of consumer confidence are not of significant value in forecasting consumer spending. In fact, in some cases, they make the forecasts significantly worse.

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File URL: http://www.sciencedirect.com/science/article/B6W5T-4GM44NM-1/2/271b808bf43c0197f084ec67c74ff0aa
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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 3 (December)
Pages: 435-450

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:3:p:435-450
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
  2. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  3. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  4. Eric M. Leeper, 1992. "Consumer attitudes: king for a day," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-15.
  5. Easaw, Joshy Z. & Heravi, Saeed M., 2004. "Evaluating consumer sentiments as predictors of UK household consumption behavior: Are they accurate and useful?," International Journal of Forecasting, Elsevier, vol. 20(4), pages 671-681.
  6. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December.
  7. Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
  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.
  9. Tom Stark, 2000. "Does current-quarter information improve quarterly forecasts for the U.S. economy?," Working Papers 00-2, Federal Reserve Bank of Philadelphia.
  10. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
  11. Yash P. Mehra & Elliot W. Martin, 2003. "Why does consumer sentiment predict household spending?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 51-67.
  12. 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.
  13. Stark, Tom & Croushore, Dean, 2002. "Reply to the comments on 'Forecasting with a real-time data set for macroeconomists'," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 563-567, December.
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