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The determinants of consumer confidence: the case of United States and Belgium

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  • BELTRAN, Helena
  • DURRE, Alain

Abstract

The paper is dealing with the controversial question of the potential impact of stock market fluctuations on consumer confidence. In the last few years, this confidence index has gained importance in business cycle analysis and empirical evidence has shown its explanatory power in forecasting consumption along with standard macroeconomic variables. Meanwhile, numerous interpretations of its fluctuations arose, and few were based on a solid argumentation. Therefore, we propose in this paper to determine which elements are actually driving the confidence index. Using the standard error-correction mechanism model and non-linear methods, we analyze the relationship between the confidence index and several economic variables, over the period ranging from January 1983 to December 2001. As a growing number of economic observers claim the stock market fluctuations have a strong impact on consumer confidence, we especially focus on this potential impact. The models are estimated for the United States and for Belgium for which the importance of equities in the households net wealth is quite different. We find in particular that stock market fluctuations have explanatory power in the evolution of consumer confidence in the United States, especially since the beginning of the nineties.

Suggested Citation

  • BELTRAN, Helena & DURRE, Alain, 2003. "The determinants of consumer confidence: the case of United States and Belgium," CORE Discussion Papers 2003053, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2003053
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-2003.html
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    References listed on IDEAS

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    1. 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.
    2. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
    3. 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.
    4. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
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    Citations

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    Cited by:

    1. Tufan Ekici, 2016. "Subjective Financial Distress in the Formation of Consumer Confidence: Evidence from Novel Household Data," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 30(2), pages 11-36.
    2. Konstantinou, Panagiotis & Tagkalakis, Athanasios, 2011. "Boosting confidence: Is there a role for fiscal policy?," Economic Modelling, Elsevier, vol. 28(4), pages 1629-1641, July.
    3. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
    4. Md. Kabir Ahmed Chowdhury & G.M. Abul Kalam Azad, 2010. "Consumer Confidence in Financial Markets," Working Papers id:3265, eSocialSciences.

    More about this item

    Keywords

    consumer confidence; business cycles; consumer surveys; stock prices;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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