In Search of the Drivers of the Turkish Consumer Confidence

Both the empirical and theoretical literature examines the significance of �willingness to buy� channel in household�s consumption decision. It suggests that the consumer confidence might carry valuable information to robustly predict consumption. It also emphasizes its power while explaining consumption particularly in times of high economic and political uncertainty. In this study we initially examine the drivers of the consumer confidence in a major developing economy, namely Turkey. We show that consumer prices, exchange rate, interest rates on consumer loans and unemployment rate are the major drivers of the confidence. We then find that consumers are asymmetric in their responses to the changes in these variables. In particular, our results show that the consumer confidence is more responsive to currency depreciation than currency appreciation and more responsive to slowdown in inflation than acceleration in inflation. Besides, the relative importance of macroeconomic and financial variables in shaping the consumer confidence is not stable as the latter gains more weight when financial volatility rises. Finally, we show that political uncertainty, such as elections have an important influence over the consumer confidence that goes beyond their impact on macroeconomic and financial variables.