Is consumer confidence index a suitable predictor of future economic growth? An evidence from the USA

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Date
2017-06-15
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Technical university of Liberec, Czech Republic
Technická Univerzita v Liberci
Abstract
The problem of the prediction of business cycles, and economic recessions in particular, belongs among the most important topics of contemporary macroeconomics. However, economists were not considerably successful when dealing with the recession forecasting so far, notably, the Great Recession of the late 2000s and early 2010s emerged rather surprisingly. The aim of this paper is to examine the statistical relationship (in terms of Granger causality) between the Consumer Confidence Index (CCI) and real GDP growth in the USA from 1960 to 2015 in order to find whether the CCI can be a suitable predictor of the economic growth, or economic recessions respectively. Also the short-term dynamics of four periods covering US economic recessions (1967-1978, 1975-1985, 1995-2005, and 2005-2015) was examined. The main results are that the CCI Granger causes GDP in the long-run, with the lag of 6 months. As for shorter periods, the CCI Granger caused GDP in three out of four examined periods, including the Great Recession (with the lag of 3 months), and only for the so called dot-com bubble period Granger causality was reversed, with GDP causing the CCI with the lag of 6 months. These results indicate that the CCI can be considered a suitable predictor of GDP at least for the USA, but more complex and broader study, including other major economics such as the European Union, Germany, or Japan, is certainly needed.
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Subject(s)
Consumer Confidence Index, economic growth, GDP, Granger causality, VAR model3
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ISSN
1212-3609
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