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Does Consumer Confidence Forecast Consumption Expenditure in New Zealand? - WP 03/22

Publication Details

  • Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?
  • Published: Sep 2003
  • Status: Current
  • Author: Goh, Khoon Lek
  • JEL Classification: E21; E27
  • Hard copy: Available in HTML and PDF formats only.
 

Does Consumer Confidence Forecast Consumption Expenditure in New Zealand?

New Zealand Treasury Working Paper 03/22

Published September 2003

Author: Khoon Lek Goh

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.

Contents

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Abstract

Table of Contents

List of Tables

List of Figures

1 Introduction

2 Consumer Confidence Surveys in New Zealand

3 Information Content of Consumer Confidence

4 Forecasting Ability of Consumer Confidence

5 Empirical Results

6 Conclusions

Appendix: Data and Data Sources

References

twp03-22.pdf (370 KB) pp. 1–20

List of Tables

List of Figures

Acknowledgements

I would like to thank Richard Downing, Iris Claus, Tim Hampton, Satish Ranchhod and John Creedy for useful discussions and comments.

Disclaimer

The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

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