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Does Consumer Confidence Forecast Household Spending? The Euro Area Case

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  • Dion, David Pascal

Abstract

The following analysis, based on error correction models, suggests that consumer confidence, together with traditional macroeconomic variables, contains a forecasting and explicative power on consumption. By including consumer confidence in a consumption function, consumer confidence releases a significant coefficient. Such a confidence-augmented consumption model provides good forecasting results.

Suggested Citation

  • Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending? The Euro Area Case," MPRA Paper 911, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:911
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    File URL: https://mpra.ub.uni-muenchen.de/911/1/MPRA_paper_911.pdf
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    References listed on IDEAS

    as
    1. Kumar, V. & Leone, Robert P. & Gaskins, John N., 1995. "Aggregate and disaggregate sector forecasting using consumer confidence measures," International Journal of Forecasting, Elsevier, vol. 11(3), pages 361-377, September.
    2. 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.
    3. Nicholas S. Souleles, 2001. "Consumer Sentiment: Its Rationality and Usefulness in Forecasting Expenditure - Evidence from the Michigan Micro Data," NBER Working Papers 8410, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
    7. Berg Lennart & Bergström Reinhold, 1996. "Consumer Confidence and Consumption in Sweden," Working Paper Series 1996:7, Uppsala University, Department of Economics.
    8. Dion, David Pascal, 2006. "Does Consumer Confidence Forecast Household Spending?," MPRA Paper 902, University Library of Munich, Germany.
    9. Michael C. Lovell, 1975. "Why Was the Consumer Feeling So Sad?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 473-479.
    10. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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    Citations

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    Cited by:

    1. 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.
    2. Ramalho, Esmeralda A. & Caleiro, António & Dionfsio, Andreia, 2011. "Explaining consumer confidence in Portugal," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 25-32, February.
    3. Orlando Gomes, 2010. "Consumer confidence, endogenous growth and endogenous cycles," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 377-404, September.
    4. Hatice Gokce Karasoy & Caglar Yunculer, 2015. "The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey," Working Papers 1519, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. Paradiso, Antonio & Rao, B. Bhaskara & Margani, Patrizia, 2011. "Time Series Estimates of the Italian Consumer Confidence Indicator," MPRA Paper 28395, University Library of Munich, Germany.

    More about this item

    Keywords

    Consumer confidence; consumption function; forecasting; consumer attitudes and behaviour; households;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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