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Confidence, Fundamentals, and Consumption

Author

Listed:
  • Jean-Paul L’Huillier
  • Robert Waldmann
  • Donghoon Yoo

Abstract

We offer a structural interpretation of survey measures of consumer confidence. Our approach is based on a simple forward-looking model of consumption. The model decomposes observed consumption fluctuations in changes due to fundamentals, and changes due to temporary errors caused by noisy information. Our model-based measure, estimated using national accounts, closely mimics out-of-sample survey data in the U.S. and a majority of European countries. The results provide a theoretical foundation for the use of survey-based consumer confidence indices. In addition, since national accounts are an internationally consistent measure of activity, our structural method provides an alternative and internationally consistent measure of consumer confidence.

Suggested Citation

  • Jean-Paul L’Huillier & Robert Waldmann & Donghoon Yoo, 2021. "Confidence, Fundamentals, and Consumption," ISER Discussion Paper 1135, Institute of Social and Economic Research, The University of Osaka.
    • Handle: RePEc:dpr:wpaper:1135
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    References listed on IDEAS

    as
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