What Does Really Drive Consumer Confidence?

Area of Science:

• Economics
• Macroeconomics
• Consumer Behavior

Background:

• Existing indicators may not fully capture household economic perceptions.
• Understanding household economic sentiment is crucial for economic policy.

Purpose of the Study:

• To construct and validate a novel index of households' macroeconomic environment (HOME).
• To analyze the relationship between the HOME index, consumer confidence, and macroeconomic conditions.
• To investigate the impact of macroeconomic conditions on household borrowing behavior.

Main Methods:

• Construction of the HOME index using data from 22 high-income European countries (2002-2018).
• Analysis of joint properties between the HOME index and consumer confidence indicators.
• Econometric analysis linking the HOME index to household credit extension.

Main Results:

• The HOME index accurately reflects business/financial cycles and household economic perceptions.
• Household expectations are strongly correlated with current macroeconomic conditions.
• Asset prices and lending conditions significantly influence household behavior.
• Mortgage decisions require a longer period of favorable economic conditions compared to consumer loans.

Conclusions:

• The HOME index provides a valuable measure of households' macroeconomic environment.
• Household expectations are a reliable indicator of current economic conditions.
• Macroeconomic stability is essential for significant household investment, such as mortgages.