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Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?

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Abstract

This paper examines the ability of consumer confidence to forecast consumption expenditure in New Zealand. A two-step process commonly used by other researchers, which was developed by Carroll, Fuhrer and Wilcox (1994), was utilised. The two most widely followed and reported measures of consumer confidence in New Zealand – the One News Colmar Brunton Poll and the Westpac McDermott Miller Consumer Confidence Survey – were used. Lagged values of consumer confidence on its own were found to have some predictive ability for forecasting consumption growth. However, this predictive ability was greatly reduced when control variables – labour income, interest rates and stock prices - were introduced, suggesting that consumer confidence merely reflects current economic conditions. Because of this, consumer confidence provides little additional information above readily available economic and financial data for forecasting consumption. However, since confidence indexes are available in a timely manner compared to economic data, they still provide useful summary information for making assessments of current economic conditions.

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  • Khoon Lek Goh, 2003. "Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?," Treasury Working Paper Series 03/22, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:03/22
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp03-22.pdf
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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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    5. 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.
    6. Joanne Loundes & Rosanna Scutella, 2000. "Consumer Sentiment and Australian Consumer Spending," Melbourne Institute Working Paper Series wp2000n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. Acemoglu, Daron & Scott, Andrew, 1994. "Consumer Confidence and Rational Expectations: Are Agents' Beliefs Consistent with the Theory?," Economic Journal, Royal Economic Society, vol. 104(422), pages 1-19, January.
    8. Atsuo Utaka, 2003. "Confidence and the real economy - the Japanese case," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 337-342.
    9. 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.
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    1. repec:spr:soinre:v:133:y:2017:i:2:d:10.1007_s11205-016-1376-4 is not listed on IDEAS
    2. 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.
    3. Orlando Gomes, 2009. "On the stability of endogenous growth models: An evaluation of the agents' response to output fluctuations," Journal of Economic Studies, Emerald Group Publishing, vol. 36(1), pages 17-35, January.
    4. Lucia F. Dunn & Ida A. Mirzaie, 2006. "Turns in Consumer Confidence: An Information Advantage Linked to Manufacturing," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 343-351, April.
    5. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
    6. Li, Cheng, 2011. "Consumer expectation and output growth: The case of China," Economics Letters, Elsevier, vol. 113(3), pages 298-300.
    7. Orlando Gomes, 2010. "Consumer confidence, endogenous growth and endogenous cycles," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 377-404, September.

    More about this item

    Keywords

    Consumer confidence; consumption; forecasting;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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