Forecasting Household Saving Rate with Consumer Confidence Indicator and its Components: Panel Data Analysis of 14 European Countries

Purpose: The aim of this paper is to assess the predictive power of the Consumer Confidence Indicator and its underlying components for household saving rate in the broad cross-country settlement. Two questions are addressed in particular. First, do Consumer Confidence Indicator and its components indeed forecast future household propensity to save on their own? Second, do Consumer Confidence Indicator and its components contain any predictive power for household saving beyond economic fundamentals? Design/Methodology/Approach: The regression analysis using panel data for 14 European countries is used. Findings: Our results reveal that Consumer Confidence Indicator and most of its component questions have predictive power for the forecasts of household saving rate in both cases - as distinct predictor and as additional variable to the baseline model. Practical implications: Generally, our results support the recommendations to combine subjective (confidence indexes) and objective (economic fundamentals) indicators to achieve a broader picture and a more reliable basis for forecasts and policy assessments in the area of household finance. The results may be of special interest in terms of profound changes in consumer confidence related to the global pandemic COVID-19. Originality: This study extends the knowledge in consumer confidence – household saving relationship and is the first analysis of consumer confidence forecasting ability for household saving settled in the broad European perspective.