Consumer sentiment and consumption

an update for Australia

Con Korkofingas, Joseph Macri

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution

Abstract

Policy-makers, business analysts and the media have always closely monitored consumer sentiment indices. It is widely assumed that consumer sentiment is a good indicator and predictor of household consumption. In this study, we revisit the empirical question raised by Carroll, Fuhrer and Wilcox (1994) of whether there is any additional evidence of a direct and independent influence running from sentiment to consumption. A recent study, by Easaw, Garratt and Heravi (2005) has found, using a similar framework as articulated in Carroll, Fuhrer and Wilcox (1994), that Consumer Sentiment does, in part, predict household expenditure However, the studies by Carroll, Fuhrer and Wilcox (1994) and Easaw, Garratt and Heravi (2005) are based on relatively ad hoc specifications of the aggregate consumption function. The motivation for this paper is to determine whether consumer sentiment has any predictive ability for aggregate consumption when it is examined over a range of aggregate consumption specifications for Australia for the period I979:Q4 to 2006:Q4. The specifications are chosen to represent a spectrum of theoretical aggregate consumption formulations. We find that consumer sentiment is significant when we augment it with a well-specified consumption function.
Original languageEnglish
Title of host publicationProceedings of the Fourth Annual Conference of the Applied Business and Entrepreneurship Association International
EditorsYi-Chun Wang
Place of PublicationPortland, USA
PublisherPamplin School of Business Administration, University of Portland
Pages448-465
Number of pages18
Publication statusPublished - 2007
EventApplied Business and Entrepreneurship Association International Conference (4th : 2007) - Kauai, Hawaii
Duration: 16 Nov 200620 Nov 2006

Conference

ConferenceApplied Business and Entrepreneurship Association International Conference (4th : 2007)
CityKauai, Hawaii
Period16/11/0620/11/06

Keywords

  • consumption
  • sentiment
  • volatility

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    Korkofingas, C., & Macri, J. (2007). Consumer sentiment and consumption: an update for Australia. In Y-C. Wang (Ed.), Proceedings of the Fourth Annual Conference of the Applied Business and Entrepreneurship Association International (pp. 448-465). Portland, USA: Pamplin School of Business Administration, University of Portland.