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Article: Why does consumer sentiment predict household spending?
- Article from:
- Economic Quarterly
- Article date:
- September 22, 2003
- Author:
CopyrightCOPYRIGHT 2003 Federal Reserve Bank of Richmond. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The index of consumer sentiment is one of the most watched economic indicators. It is widely believed in both the financial press and academic circles that consumer sentiment has predictive content for household spending. This belief in the predictive content of consumer sentiment is in line with most previous research that indicates the sentiment contains information about future changes in household spending beyond that already contained in past values of other available indicators.
Why does consumer sentiment predict household spending? In an interesting paper, Carroll, Fuhrer, and Wilcox (1994)--denoted hereafter as CFW (1994)--have suggested two possible ...