Forecasting Consumption in Real Time: The Role of Consumer Confidence Surveys

Kajal Lahiri, George Monokroussos and Yongchen Zhao

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: We study the role of consumer confidence surveys in forecasting personal consumption expenditure. We reexamine existing models of consumption and consumer confidence using both quarterly and monthly data in real time. Additionally, we produce forecasts of consumption expenditures with and without consumer confidence measures using a dynamic factor model and a real-time, jagged-edge data set. We establish in a robust way that consumer confidence significantly improves the accuracy of consumption forecasts. Furthermore, traditional macroeconomic theories seem to be unable to fully account for these results.

Date: 2012
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