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Determinants of Consumer Sentiment: Evidence from Household Survey Data

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  • Kajal Lahiri
  • Yongchen Zhao

Abstract

We study the information content of the five components of the University of Michigan¡¯s Index of Consumer Sentiment and identify the main determinants of these measures, using semiparametric ordered choice models and household data from the Surveys of Consumers from January 1978 to September 2012. Our findings suggest that consumers¡¯ own perceptions and expectations, as measured by other survey questions in the Surveys of Consumers, are the most important determinants of the sentiment index. After this set of factors is controlled for, consumers¡¯ demographic characteristics, aggregate macroeconomic variables, and professional forecasts account for little in addition. We also find that the sentiment components about the overall economic conditions are less sensitive to consumers¡¯ own views and characteristics than the components about consumers¡¯ household financial situations. These findings could motivate the use of consumer sentiment measures in a variety of applications, including forecasting consumption expenditures.

Suggested Citation

  • Kajal Lahiri & Yongchen Zhao, 2013. "Determinants of Consumer Sentiment: Evidence from Household Survey Data," Discussion Papers 13-12, University at Albany, SUNY, Department of Economics.
  • Handle: RePEc:nya:albaec:13-12
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    File URL: http://www.albany.edu/economics/research/workingp/2013/lz-sentiment.pdf
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    1. Gabler, Siegfried & Laisney, Francois & Lechner, Michael, 1993. "Seminonparametric Estimation of Binary-Choice Models with an Application to Labor-Force Participation," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 61-80, January.
    2. Fan, Chengze Simon & Wong, Phoebe, 1998. "Does consumer sentiment forecast household spending?: The Hong Kong case," Economics Letters, Elsevier, vol. 58(1), pages 77-84, January.
    3. C. Alan Garner, 1991. "Forecasting consumer spending: should economists pay attention to consumer confidence surveys?," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 57-71.
    4. Maddala,G. S., 1986. "Limited-Dependent and Qualitative Variables in Econometrics," Cambridge Books, Cambridge University Press, number 9780521338257, May.
    5. Breslaw, Jon A. & McIntosh, James, 1998. "Simulated latent variable estimation of models with ordered categorical data," Journal of Econometrics, Elsevier, vol. 87(1), pages 25-47, August.
    6. 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.
    7. Berg Lennart & Bergström Reinhold, 1996. "Consumer Confidence and Consumption in Sweden," Working Paper Series 1996:7, Uppsala University, Department of Economics.
    8. Melenberg, B. & van Soest, A.H.O., 1996. "Measuring the costs of children : Parametric and semiparametric estimators," Other publications TiSEM 1227b8b2-0575-4b5d-9bac-7, Tilburg University, School of Economics and Management.
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    Cited by:

    1. repec:wly:japmet:v:31:y:2016:i:7:p:1254-1275 is not listed on IDEAS
    2. Kajal Lahiri & George Monokroussos & Yongchen Zhao, 2016. "Forecasting Consumption: the Role of Consumer Confidence in Real Time with many Predictors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1254-1275, November.
    3. Dilyara Ibragimova, 2014. "Consumer Expectations Of Russian Populations: Cohort Analysis (1996–2009)," HSE Working papers WP BRP 41/SOC/2014, National Research University Higher School of Economics.

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