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The Determinants of the U.S. Consumer Sentiment: Linear and Nonlinear Models

Author

Listed:
  • Marwane El Alaoui

    (Questrom School of Business—Boston University, 595 Commonwealth Avenue, Boston, MA 02215, USA)

  • Elie Bouri

    (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon)

  • Nehme Azoury

    (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon)

Abstract

We examined the determinants of the U.S. consumer sentiment by applying linear and nonlinear models. The data are monthly from 2009 to 2019, covering a large set of financial and nonfinancial variables related to the stock market, personal income, confidence, education, environment, sustainability, and innovation freedom. We show that more than 8.3% of the total of eigenvalues deviate from the Random Matrix Theory (RMT) and might contain pertinent information. Results from linear models show that variables related to the stock market, confidence, personal income, and unemployment explain the U.S. consumer sentiment. To capture nonlinearity, we applied the switching regime model and showed a switch towards a more positive sentiment regarding energy efficiency, unemployment rate, student loan, sustainability, and business confidence. We additionally applied the Gradient Descent Algorithm to compare the errors obtained in linear and nonlinear models, and the results imply a better model with a high predictive power.

Suggested Citation

  • Marwane El Alaoui & Elie Bouri & Nehme Azoury, 2020. "The Determinants of the U.S. Consumer Sentiment: Linear and Nonlinear Models," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 8(3), pages 1-13, July.
  • Handle: RePEc:gam:jijfss:v:8:y:2020:i:3:p:38-:d:379094
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    References listed on IDEAS

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