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Consumer Confidence and Household Investment

Hashmat Khan (), Jean-François Rouillard and Santosh Upadhayaya ()
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Santosh Upadhayaya: Department of Economics, Carleton University,

No 19-06, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: Can consumer confidence account for the leading indicator property of household investment over the US business cycle? We find that it does. Consumer confidence leads household investment and housing starts by two and one quarter, respectively. Household investment increases in a persistent manner after a positive confidence shock. The responses of total hours-worked and output also show a persistent increase, and so do real house prices. Confidence shocks account for a substantial share of forecast error variation in household investment, hours-worked and output. They are not related to movements in future supply side fundamentals such as total factor productivity and the relative price of investment. Demand side forces originating in consumers' social and psychological factors are, therefore, relevant for household investment dynamics.

Keywords: Consumer confidence; Household investment; Confidence Shocks; Business cycles (search for similar items in EconPapers)
JEL-codes: D12 D83 D84 E22 E32 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-09-05, Revised 2024-01-04
New Economics Papers: this item is included in nep-mac
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Published: Carleton Economic Papers

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