Survey_GP_2004

Abstract

The objective of this article is to reassess the empirical validity of the consumer sentiment indices in anticipating the evolution of economic activity by considering eight countries – Australia, Canada, France, Germany, Italy, Japan, UK and USA – over a period of quarterly data of about thirty years, from the beginning of the 1970s to the first quarter of 2002. To our knowledge, this paper is the first to analyse systematically the relationships between consumer sentiment, output fluctuations and other macroeconomic variables over many countries and over such a long period of time by modelling them simultaneously in the cointegrated vector autoregression (VAR) framework. In this way, we appropriately handle the simultaneity concept between non stationary variables, and avoid the limits and drawbacks of the single-equation approach used in most of the literature. The preliminary step of our analysis is the definition of the set of the variables of interest. Since the potentially large number of variables that may influence both consumer sentiment and output complicates the analysis, a number of exclusion restrictions are tested. This empirical analysis is presented in Sections 2 and 3. The results can be summarized as follows: (1) the consumer sentiment to output relationship presents significant differences across countries, (2) consumer sentiment is related to a set of macroeconomic variables that may change over time.