Replacing Judgment by Statistics: Constructing Consumer Confidence Indicators on the Basis of Data-driven Techniques

Alessandro Girardi, Christian Gayer and Andreas Reuter

No 34, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This article compares the properties of the European Commission's Consumer Confidence Indicator (CCI) for the euro area with three alternative indices which differ from the former in that they (i) consider a richer set of survey questions and (ii) are the result of data-driven statistical techniques, rather than the simple arithmetic mean of the input series. The alternative indicators are shown to perform only slightly better than the CCI in tracking real private consumption growth and to fail to produce significantly better forecasts of expansions and contractions in private consumption, once information from relevant, timely available hard data is controlled for. The conclusions change, however, if the analysis is re-conducted on well-defined subsets of survey questions. Concretely, the application of the alternative construction techniques to a data set which is limited to questions about consumers' personal finances produces an indicator which, combined with relevant macro-economic time series, yields significant improvements in forecasting expansions and contractions in private consumption.

JEL-codes: C22 C53 E37 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-07
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:034

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