World Economy :: Consumer Confidence

Matsusaka & Sbordone (1995) utilize quarterly data from 1953 to 1988 to empirically enquire the race between consumer self-confidence and Gross National Product in the United States. Using sender auto regressions Matsusaka ( 1995) & Afshar, Arabian, Zomorrodian (2007) examined the effect of pure confidence on GNP by implementing control variables such as the Index of leading indicators & Consumer price baron respectively finding that confidence granger caused GNP for 1, 2, 3 & 4 quarter lag models. Through forecast error variance decompositions they cogitate that 12%-26% & 8-23% of the variation in GNP good deal be attributed to consumer confidence. The tenuous variations in the decompositions can b accounted for by variable orderings and differing time periods. as well Utaka (2003) applied the same methodology used by Matsusaka & Sbordone(1995) to empirically investigate this relationship in the case of Japan. By using not lonesome(prenominal) quarterly data, but mon thly and semi annual data from 1980q1- 2000q3 they reconfirmed the consumer confidence- gross domestic product relationship for Japan and found that it accounted for 9%-11% of variation in GNP. This showed littler variation for Japan illustrating that confidence indicators influence on GDP movements ar country dependent making it unwise to assume uniform relationship strength across countries. Golinelli & Parigi (2004) investigated this matter by analysing the consumer confidence relationship in eight countrys from 1970-2002. They modelled the CCI-GDP relationship using a co-integrated vector auto regression using a common set of macroeconomic variables that were country specific to control for correlation being driven by other variables therefore avoiding the limits of the single equation approach found in introductory literature. They tested the forecasting power by comparing the RMSE for unexclusive and restricted models for 1, 2 & 4 steps horizons. Golinelli (2004), Mourouga ne & Roma (2002), Taylor & Mcnab (2007) find that RMSE was mostly lower in the unrestricted model at short margin horizons (1-2 steps) for EU countries, illustrating its importance in short term forecasting. Much of previous literature has aimed at establishing whether consumer confidence indexes provide additional information in comparison to macroeconomic variables and not its forecasting power. However, these have received meld results in most cases, yet it is acknowledged they maintained an autonomous graphic symbol in forecasting, (see Mueller 1963, Adams 1964, Suits &sparks 1965, fair 1971 a & 1971b, Adams & Klein 1972). Opinion now acknowledges that the index can help predict economic activity (see Garner 1991, Fuhrer 1993 Carol et al 1994, Kumar et al 1995, Bran & Ludvigson 1998, Eppright et al 1998)