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Forecasting Components of Consumption with Components of Consumer Sentiment

Forecasting Components of Consumption with Components of Consumer Sentiment Abstract We present new evidence that existing, but long-ignored, measures of consumer sentiment can reduce errors in forecasting total consumption expenditures and its components. The component questions of the aggregate Index of Consumer sentiment improve forecasts, not only of consumer expenditures on durables but also on non-durables and services. Empirical studies have historically focused on whether consumer sentiment improves one-quarterahead forecasts of consumer expenditures. In fact, we document that measures of consumer sentiment are especially predictive at the longer, four-quarter-ahead horizon. In addition, they typically contribute at least as much to one-quarter-ahead and four-quarter-ahead forecasts of consumption as do income and wealth variables. Out-ofsample forecasts for the 2000-2005 period further substantiate that measures of consumer sentiment can reduce consumption forecasting errors appreciably. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Economics Springer Journals

Forecasting Components of Consumption with Components of Consumer Sentiment

Business Economics , Volume 42 (4): 11 – Oct 1, 2007

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References (16)

Publisher
Springer Journals
Copyright
2007 National Association for Business Economics
ISSN
0007-666X
eISSN
1554-432X
DOI
10.2145/20070403
Publisher site
See Article on Publisher Site

Abstract

Abstract We present new evidence that existing, but long-ignored, measures of consumer sentiment can reduce errors in forecasting total consumption expenditures and its components. The component questions of the aggregate Index of Consumer sentiment improve forecasts, not only of consumer expenditures on durables but also on non-durables and services. Empirical studies have historically focused on whether consumer sentiment improves one-quarterahead forecasts of consumer expenditures. In fact, we document that measures of consumer sentiment are especially predictive at the longer, four-quarter-ahead horizon. In addition, they typically contribute at least as much to one-quarter-ahead and four-quarter-ahead forecasts of consumption as do income and wealth variables. Out-ofsample forecasts for the 2000-2005 period further substantiate that measures of consumer sentiment can reduce consumption forecasting errors appreciably.

Journal

Business EconomicsSpringer Journals

Published: Oct 1, 2007

Keywords: economics, general; political economy/economic systems; business and management, general

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