FORECASTING CONSUMPTION: THE ROLE OF CONSUMER CONFIDENCE IN REAL TIME WITH MANY PREDICTORS

We study the role of consumer confidence in forecasting real personal consump-tion expenditure. We contribute to the extant literature in three main ways: First, we reexamine existing empirical models of consumption and consumer confidence not only at the quarterly frequency, but using monthly data as well. Second, we employ real-time data in addition to commonly used revised vintages. Third, we investigate the role of consumer confidence in a rich information context. We pro-duce forecasts of consumption expenditures with and without consumer confidence measures using a dynamic factor model and a large, real-time, jagged-edge data set. In a robust way, we establish the independent role of confidence surveys in improving the accuracy of consumption forecasts