Consumer sentiment and consumer spending : decomposing the Granger causal relationship in the time domain

S.E.C. Gelper, A. Lemmens, C. Croux

Research output: Contribution to journalArticleAcademicpeer-review

37 Citations (Scopus)
141 Downloads (Pure)

Abstract

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.
Original languageEnglish
Pages (from-to)1-11
Number of pages12
JournalJournal of Applied Economics
Volume39
Issue number1
DOIs
Publication statusPublished - 2007

Fingerprint Dive into the research topics of 'Consumer sentiment and consumer spending : decomposing the Granger causal relationship in the time domain'. Together they form a unique fingerprint.

Cite this