Consumer confidence and aggregate consumption expenditures in the United States

Bahram Adrangi, Joseph Macri

Research output: Contribution to journalArticle

Abstract

This paper examines the relationship between consumer confidence and consumption expenditures in the US for the period 1970:1-2007:4. Consumer confidence surveys are widely reported in the business and economics media and play an important role in the direction of business decisions and equity market movements. Despite the widely cited importance and popularity of consumer confidence indices, empirical studies attempting to establish a causal relationship between consumer confidence indices and consumption expenditures are mixed. This paper employs disaggregated consumer expenditures on services, nondurable and durable goods. The consumption functions for the three categories were obtained from the well-established Fair (2009) Macro-econometric model of the US economy. The results of our regression estimation and cointegration analysis, for both the short and long-run, suggests that consumer confidence is a determining factor for expenditures on consumer durable goods only. This finding supports the work of Blanchard (1993) and Hall (1993).
Original languageEnglish
Pages (from-to)1-18
Number of pages18
JournalReview of economics and finance
Volume2011
Issue number1
Publication statusPublished - 2011

Keywords

  • consumer sentiment
  • cointegration
  • macroeconomic models
  • household consumption

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