Forecasting Private Consumption by Consumer Surveys

31 Pages Posted: 14 Oct 2010

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Date Written: October 2010

Abstract

Survey-based indicators such as the consumer confidence are widely seen as leading indicators for economic activity, especially for the future path of private consumption. Although they receive high attention in the media, their forecasting power appears to be very limited. Therefore, this paper takes a fresh look on the survey data, which serve as a basis for the consumer confidence indicator (CCI) reported by the EU Commission for the euro area and individual member states. Different pooling methods are considered to exploit the information embedded in the consumer survey. Quantitative forecasts are based on Mixed Data Sampling (MIDAS) and bridge equations. While the CCI does not outperform an autoregressive benchmark for the majority of countries, the new indicators increase the forecasting performance. The gains over the CCI are striking for Italy and the entire euro area (20 percent). For Germany and France the gains seem to be lower, but are nevertheless substantial (10 to 15 percent). The best performing indicator should be built upon pre-selection methods, while data-driven aggregation methods should be preferred to determine the weights of the individual ingredients.

Keywords: Consumer confidence, consumption, nowcasting, mixed frequency data

JEL Classification: E21, C22

Suggested Citation

Dreger, Christian and Kholodilin, Konstantin A., Forecasting Private Consumption by Consumer Surveys (October 2010). DIW Berlin Discussion Paper No. 1066, Available at SSRN: https://ssrn.com/abstract=1691590 or http://dx.doi.org/10.2139/ssrn.1691590

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
44
Abstract Views
676
PlumX Metrics