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Consumer confidence as a predictor of consumption spending: evidence for the United States and the euro area

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  • Dées, Stéphane
  • Soares Brinca, Pedro

Abstract

For most academics and policy makers, the depth of the 2007-09 financial crisis, its longevity and its impacts on the real economy resulted from an erosion of confidence. This paper proposes to assess empirically the link between consumer sentiment and consumption expenditures for the United States and the euro area. It shows under which circumstances confidence indicators can be a good predictor of household consumption even after controlling for information in economic fundamentals. Overall, the results show that the consumer confidence index can be in certain circumstances a good predictor of consumption. In particular, out-of-sample evidence shows that the contribution of confidence in explaining consumption expenditures increases when household survey indicators feature large changes, so that confidence indicators can have some increasing predictive power during such episodes. Moreover, there is some evidence of a "confidence channel" in the international transmission of shocks, as U.S. confidence indices lead consumer sentiment in the euro area. JEL Classification: C32, E17, F37, F42

Suggested Citation

  • Dées, Stéphane & Soares Brinca, Pedro, 2011. "Consumer confidence as a predictor of consumption spending: evidence for the United States and the euro area," Working Paper Series 1349, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20111349
    Note: 2544114
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    consumer confidence; consumption; international linkages; Non-linear modeling;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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