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Understanding the Consumer Confidence Index in Colombia: A structural FAVAR analysis

Author

Listed:
  • Camilo Alberto Cárdenas-Hurtado

    (Banco de la República de Colombia)

  • María Alejandra Hernández-Montes

    (Banco de la República de Colombia)

Abstract

The consumer confidence index (CCI) is very relevant for economic analysis due to its timely publication and forecasting capacities. Although there is extensive literature on the link between CCI and macroeconomic aggregates, in particular with households' consumption, few papers have studied the fundamental factors that explain the CCI behaviour. Actually, no attempt has been made for the Colombian case. In this paper we aim to fill this gap. We estimate a Structural Factor-Augmented VAR (SFAVAR) model and perform a historical decomposition (HD) on the CCI series to obtain the underlying structural innovations that drove the CCI dynamics over the past few years. Our findings suggest that the CCI responded to changes in the underlying determinants and to non-fundamental shocks possibly related to uncertainty periods and noneconomic, socio-political or electoral events. Moreover, a counterfactual analysis shows that households' consumption forecasts improve when using the CCI series that are not affected by these non-fundamental shocks. **** ABSTRACT: El Índice de Confianza del Consumidor (ICC) es un instrumento relevante para el análisis económico, dada su oportuna publicación y sus capacidades de pronóstico. A pesar de que existe una gran cantidad de trabajos que estudian la relación entre el ICC y los agregados macroeconómicos, y en particular con el consumo privado, son pocos los estudios que han analizado los factores fundamentales que definen el comportamiento del ICC. De hecho, no hay ningún estudio al respecto para el caso colombiano. Con este documento tratamos de resolver este problema. Estimamos un modelo VAR estructural de factores (SFAVAR) y realizamos una descomposición histórica de choques del ICC para obtener los errores estructurales que determinaron la dinámica del ICC en años recientes. Nuestros resultados sugieren que el comportamiento observado del ICC obedeció tanto a cambios en sus determinantes como a choques no fundamentales relacionados, posiblemente, con eventos coyunturales de naturaleza no-económica, socio-política y/o electoral. Adicionalmente, un ejercicio contrafactual permite ver que el pronóstico del consumo privado mejora cuando se utiliza una serie del ICC que no está afectada por los choques no explicados por sus fundamentales.

Suggested Citation

  • Camilo Alberto Cárdenas-Hurtado & María Alejandra Hernández-Montes, 2019. "Understanding the Consumer Confidence Index in Colombia: A structural FAVAR analysis," Borradores de Economia 1063, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1063
    DOI: 10.32468/be.1063.pdf?sequence=11&isAllowed=y
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    More about this item

    Keywords

    Consumers' Confidence Index; Colombia; Structural; FAVAR; Historical Decomposition; Índice de Confianza del Consumidor; Colombia; Estructural; FAVAR; Descomposición Histórica;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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