The Oil Price Changes and the Consumer Confidence: Evidence from Canada

Previous studies on macroeconomic effects of oil price changes and of oil price uncertainty have mainly focused on real economic outcomes, such as employment, consumption and aggregate output. This paper investigates the links between the oil price changes and the consumer confidence in Canada, at both the national and the regional levels, using the correlation analysis and least square econometric methods. The results of this paper suggest the oil price declines mainly affect the consumer confidence about the overall employment and about the overall buying conditions of durable goods. More specifically, the oil price declines have negative impacts on the consumer confidence about the overall employment in Canada. However, the impacts on the consumer confidence about the overall buying conditions of durable goods differ in the oil-producing regions and the oil-consuming regions. For the minority of the regions in Canada, the oil price changes affect the consumer confidence about the household financial positions. In addition, several oil price transformations are examined in this paper. The introduction of the asymmetric oil price changes reveals that the oil price declines are more important in affecting the consumer confidence about the employment expectation than the oil price rises. Although different levels of the oil price volatility might not affect the consumer confidence, the higher is the oil price volatility, the more sensitive is the consumer confidence to the oil price changes of the same size