Abstract
This paper examines whether “consumer sentiment,” an often neglected variable, explains consumption expenditures for Australia. Since household consumption accounts for more than 60 percent of U.S. GDP and a similar proportion in other developed economies, fluctuations in consumption may result in significant changes in the state of the economy. Therefore, we develop a theoretical model that suggests why consumer sentiment may influence consumption expenditures. Furthermore, using a carefully specified consumption function as the “test-bed,” we consider empirically whether there is an independent impact of sentiment on consumption. Our results suggest that consumer sentiment does influence variations in consumption expenditure.
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This research was supported by MURG 20523147. We would like to thank the editor and the anonymous referees for their constructive comments; Don Harding and Elizabeth Webster at the Institute of Applied Economic and Social Research, University of Melbourne; Michael Grady; and Lynne Stoddart for their research assistance. We would also like to thank Daehoon Nahm for his invaluable econometric advice. The usual caveat conceming errors naturally applies.
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Anthony Bryant, W.D., Macri, J. Does sentiment explain consumption?. J Econ Finan 29, 97–110 (2005). https://doi.org/10.1007/BF02761545
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DOI: https://doi.org/10.1007/BF02761545