What is one reason that the Index of Consumer Confidence is politically significant

Author

Listed:

• Bertrand Marc
• Andreas Reuter

Abstract

In line with the growing prominence of consumer confidence as a leading indicator of economic activity, a body of literature has built up which aims to explain its drivers. While all studies seem to agree that consumer confidence can be partially explained by variables reflecting economic fundamentals, there is less agreement on the role played by potentially relevant, non-economic events. This paper focusses on the effect of elections. Considering that they occur regularly they pose a repetitive challenge to analysts and forecasters eager to distil the right signals from the data. In this article, we analyse the impact of elections on consumer confidence in a selection of EU Member States, using error correction models, which control for a variety of relevant background variables. Proxying consumer confidence by data from the Joint Harmonised EU Programme of Business and Consumer Surveys, our analysis allows for a high degree of cross-country comparability. The presented results show elections in Austria, France and Germany to have a significant, positive effect on consumers' expectations regarding the general economic situation. The estimated cumulative effect on the level of the indicator from the beginning of the election period to the actual election (or month thereafter) is far from negligible, close to 1.0 standard deviation of the level of the dependent variable. The time it takes for the effect to build up differs across countries, with results ranging between four and nine months. In Belgium, by contrast, the results of our analysis do not provide indications of any kind of election effect on consumer expectations.

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Handle: RePEc:euf:dispap:090

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References listed on IDEAS

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More about this item

JEL classification:

• E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
• E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
• C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

NEP fields

This paper has been announced in the following NEP Reports:

• NEP-EUR-2019-01-21 (Microeconomic European Issues)

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