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The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey

Author

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  • Hatice Gokce Karasoy
  • Caglar Yunculer
Abstract
In this study, we assess empirically the relevance of consumer confidence indices (CCI) to future private consumption dynamics for Turkey in a sample period of 2002Q1 to 2014Q4. To this end, we first estimate models for total private consumption, durable and nondurable consumption growth with and without CCI and evaluate in-sample forecast powers. Next, we evaluate one-step-ahead out-of-sample forecast performances of these models from recursive OLS estimates. Finally, we test whether permanent income and precautionary savings hypotheses are capable of explaining our results on the link between consumer sentiment and future consumption expenditures. In our analyses we employ 4 different CCI series. These are overall index of CNBC-e Survey, overall index of TURKSTAT-CBRT Survey, Consumer Expectations Index (CEI) and Propensity to Consume Index (PCI) from CNBC-e Survey. Our results show that CCI have explanatory power on the future growth of both total consumption and its subcomponents. However, when other relevant variables such as real labour income, real stock price index and real interest rate are augmented to the models, CNBC-e and CEI for durable consumption, CEI and PCI for nondurable consumption are able to preserve their explanatory power on future consumption growth. On the other hand, CCI measures improve out-of-sample forecast performance for nondurable consumption growth. Finally, we find no evidence for either precautionary savings motive or permanent income hypothesis on the link between consumer sentiment and future private consumption changes.

Suggested Citation

  • Hatice Gokce Karasoy & Caglar Yunculer, 2015. "The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey," Working Papers 1519, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1519
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    References listed on IDEAS

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    Cited by:

    1. Büyükbaşaran, Tayyar & Karasoy-Can, Gökçe & Küçük, Hande, 2022. "Macroeconomic effects of bank lending in an emerging economy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 115(C).
    2. Hatice Gokce Karasoy, 2015. "Consumer Confidence Indices and Financial Volatility," CBT Research Notes in Economics 1516, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    3. Lenka Mynaříková & Vít Pošta, 2023. "The Effect of Consumer Confidence and Subjective Well-being on Consumers’ Spending Behavior," Journal of Happiness Studies, Springer, vol. 24(2), pages 429-453, February.
    4. Tugrul Gurgur & Zubeyir Kilinc, 2015. "What Drives the Consumer Confidence in Turkey?," CBT Research Notes in Economics 1517, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. António Bento Caleiro, 2021. "Learning to Classify the Consumer Confidence Indicator (in Portugal)," Economies, MDPI, vol. 9(3), pages 1-12, September.
    6. Mahmut Gunay, 2016. "Forecasting Turkish GDP Growth with Financial Variables and Confidence Indicators," CBT Research Notes in Economics 1614, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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    More about this item

    Keywords

    Consumer confidence; Private consumption; Forecasting;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • 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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