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Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?

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Abstract
This paper examines the ability of consumer confidence to forecast consumption expenditure in New Zealand. A two-step process commonly used by other researchers, which was developed by Carroll, Fuhrer and Wilcox (1994), was utilised. The two most widely followed and reported measures of consumer confidence in New Zealand – the One News Colmar Brunton Poll and the Westpac McDermott Miller Consumer Confidence Survey – were used. Lagged values of consumer confidence on its own were found to have some predictive ability for forecasting consumption growth. However, this predictive ability was greatly reduced when control variables – labour income, interest rates and stock prices - were introduced, suggesting that consumer confidence merely reflects current economic conditions. Because of this, consumer confidence provides little additional information above readily available economic and financial data for forecasting consumption. However, since confidence indexes are available in a timely manner compared to economic data, they still provide useful summary information for making assessments of current economic conditions.

Suggested Citation

  • Khoon Lek Goh, 2003. "Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?," Treasury Working Paper Series 03/22, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:03/22
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    File URL: https://treasury.govt.nz/sites/default/files/2007-09/twp03-22.pdf
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    References listed on IDEAS

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    Cited by:

    1. Aneta Maria Kłopocka, 2017. "Does Consumer Confidence Forecast Household Saving and Borrowing Behavior? Evidence for Poland," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 693-717, September.
    2. Kiryoung LEE & Chanik JO, 2018. "Forecasting Chinese Business Cycle Using Long-term Interest Rate Comovements," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 118-134, December.
    3. Gomes, Orlando, 2007. "On the stability of endogenous growth models: an evaluation of the agents’ response to output fluctuations," MPRA Paper 2891, University Library of Munich, Germany.
    4. Lucia F. Dunn & Ida A. Mirzaie, 2006. "Turns in Consumer Confidence: An Information Advantage Linked to Manufacturing," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 343-351, April.
    5. Aneta M. Klopocka & Rumiana Gorska, 2021. "Forecasting Household Saving Rate with Consumer Confidence Indicator and its Components: Panel Data Analysis of 14 European Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 874-898.
    6. Thales A. J. T. T. Maion & Marcio Issao Nakane, 2019. "News shocks and consumer expectations: evidence for Brazil," Working Papers, Department of Economics 2019_11, University of São Paulo (FEA-USP).
    7. Tufan Ekici, 2016. "Subjective Financial Distress in the Formation of Consumer Confidence: Evidence from Novel Household Data," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 30(2), pages 11-36.
    8. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
    9. Li, Cheng, 2011. "Consumer expectation and output growth: The case of China," Economics Letters, Elsevier, vol. 113(3), pages 298-300.
    10. Orlando Gomes, 2010. "Consumer confidence, endogenous growth and endogenous cycles," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(4), pages 377-404, September.

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    More about this item

    Keywords

    Consumer confidence; consumption; forecasting;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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