Consumer confidence and economic activity: a factor augmented VAR approach

Kilic E., ÇANKAYA S.

Applied Economics, vol.48, no.32, pp.3062-3080, 2016 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 48 Issue: 32
  • Publication Date: 2016
  • Doi Number: 10.1080/00036846.2015.1133902
  • Journal Name: Applied Economics
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.3062-3080
  • Keywords: Consumer confidence index, factor-augmented vector autoregressive model, psychological factors, economic activity, C32, E32, O51
  • İstanbul Ticaret University Affiliated: Yes

Abstract

This study aims to analyse the effects of the consumer confidence on economic activity for the US market. We use the empirical factor-augmented vector autoregression (FAVAR) method, which enables us to incorporate a wide range of economic activity factors into the analysis. The consumer confidence index (CCI) is chosen as the principal variable that is presumed to represent the degree of optimism on the state of economic activity. The results show that consumer confidence and economic activity are strongly correlated for manufacturing-related factors, such as industrial production and inventories. We also observe strong relation among CCI and personal consumption expenditures, as well as housing market variables.