TY - JOUR
T1 - Consumer sentiment and consumer spending : decomposing the Granger causal relationship in the time domain
AU - Gelper, S.E.C.
AU - Lemmens, A.
AU - Croux, C.
PY - 2007
Y1 - 2007
N2 - It is often believed that the consumer sentiment index has predictive power for future consumption levels. While Granger causality tests have already been used to test for this, no attempt has been made yet to quantify the predictive power of the consumer sentiment index over different time horizons. In this article, we decompose the Granger causality at different time lags, by looking at a sequence of nested prediction models. Since the consumer sentiment index turns out to be cointegrated with real consumption, we resort to error correcting models. Four consumption series are studied, namely total real consumption, real consumption of
durables, non-durables and services. Among other findings, we show that the consumer sentiment index Granger causes future consumption with an average time lag of 4–5 months. Furthermore, it is found that the consumer sentiment index has more incremental predictive power for consumption of services than for consumption of durables or non-durables, and that the index is not only useful as a predictor at the very short term, but keeps predictive power at larger time horizons.
AB - It is often believed that the consumer sentiment index has predictive power for future consumption levels. While Granger causality tests have already been used to test for this, no attempt has been made yet to quantify the predictive power of the consumer sentiment index over different time horizons. In this article, we decompose the Granger causality at different time lags, by looking at a sequence of nested prediction models. Since the consumer sentiment index turns out to be cointegrated with real consumption, we resort to error correcting models. Four consumption series are studied, namely total real consumption, real consumption of
durables, non-durables and services. Among other findings, we show that the consumer sentiment index Granger causes future consumption with an average time lag of 4–5 months. Furthermore, it is found that the consumer sentiment index has more incremental predictive power for consumption of services than for consumption of durables or non-durables, and that the index is not only useful as a predictor at the very short term, but keeps predictive power at larger time horizons.
U2 - 10.1080/00036840500427791
DO - 10.1080/00036840500427791
M3 - Article
VL - 39
SP - 1
EP - 11
JO - Journal of Applied Economics
JF - Journal of Applied Economics
SN - 1514-0326
IS - 1
ER -