Consumer confidence and consumption: empirical evidence from Chile

Abstract

This paper examines whether consumer confidence forecasts future consumption in Chile. The results show that consumer confidence indicators are positively related to consumption growth during the month following the indicators, demonstrating that consumption increases after periods of high consumer confidence. This result stands at odds with the theoretical predictions of consumption expenditures (for instance, the Precautionary Saving Hypothesis). Furthermore, the results show that consumer confidence measures can be good predictors of consumption, even after controlling for the information contained in other economic fundamentals. This evidence suggests that consumer confidence in Chile also reflect a component of consumer sentiment that is unrelated to macroeconomic conditions. Finally, additional results show that predictive models that include consumer confidence produce more accurate predictions for positive, rather than for negative changes in consumption over the next month.