Consumer Confidence and Yield Spreads in Europe

María Eva Ferreira García, María Isabel Martínez, Eliseo Navarro and Gonzalo Rubio Irigoyen

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: This paper shows the extraordinary capacity of yield spreads to anticipate consumption growth as proxy by the Economic Sentiment Indicator elaborated by the European Commission in order to predict turning points in business cycles. This new evidence complements the well known results regarding the usefulness of the slope of the term structure of interest rates to predict real economic conditions and, in particular, recessions by using a direct measure of expectations. A linear combination of European yield spreads explains a surprising 93.7% of the variability of the Economic Sentiment Indicator. Yield spreads seem to be a key determinant of consumer confidence in Europe.

Keywords: economic sentiment indicator; yield spreads; consumer confidence; expected real activity (search for similar items in EconPapers)
Date: 2005-02
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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