Forecasting Consumption: The Role of Consumer Confidence in Real Time with many Predictors
Kajal Lahiri (),
George Monokroussos () and
Yongchen Zhao ()
No 2015-02, Working Papers from Towson University, Department of Economics
We study the role of consumer confidence in forecasting real personal consumption expenditure, and contribute to the extant literature in three substantive ways: First, we reexamine existing empirical models of consumption and consumer confidence not only at the quarterly frequency, but using monthly data as well. Second, we employ real-time data in addition to commonly used revised vintages. Third, we investigate the role of consumer confidence in a rich information context. We produce forecasts of consumption expenditures with and without consumer confidence measures using a dynamic factor model and a large, real-time, jagged-edge data set. In a robust way, we establish the important role of confidence surveys in improving the accuracy of consumption forecasts, manifesting primarily through the services component. During the recession of 2007-09, sentiment is found to have a more pervasive effect on all components of aggregate consumption - durables, non-durables and services.
Keywords: Forecasting; Consumption; Consumer Sentiment; Factor Models; Kalman Filter; Real-Time Data; Fluctuation test. (search for similar items in EconPapers)
JEL-codes: C53 E21 E27 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
Date: 2015-07, Revised 2015-07
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Persistent link: http://EconPapers.repec.org/RePEc:tow:wpaper:2015-02
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