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

Stephane Dees and Pedro Brinca

No 1349, Working Paper Series from European Central Bank

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

Keywords: consumer confidence; consumption; international linkages; Non-linear modeling (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cba, nep-eec and nep-for
Note: 2544114
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Journal Article: Consumer confidence as a predictor of consumption spending: Evidence for the United States and the Euro area (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111349

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