Abstract
Consumer confidence and perceived political confidence are known to play independently a crucial role in the economic growth of a country. Using French monthly economic and political data, we analyse the relationships between the president, the prime minister and consumer confidence during cohabitation and non-cohabitation periods, based on a SUR (seemingly unrelated regression) model. During cohabitation periods, whenever the president’s confidence index increased the prime minister index decreased. Further, confidence in the prime minister was useful for predicting consumer confidence. During non-cohabitation periods, consumer confidence helps to forecast both the president’s confidence and the prime minister’s confidence.
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Notes
Since 2002, the president and the Assembly have been elected quasi-simultaneously for a 5-year term. Before 2002, the president was elected for 7 years and the Assembly for 5, which explains the potential for cohabitation at the end of the president’s term. Cohabitation occurs when the president is from a different political party from the prime minister and when the president’s party is not represented in the government.
This is consistent with Calcagno and Lopez’s (2012) predictions.
For each of the three equations, seven parameters are assumed to be equal under the null hypothesis. This makes a total of 7 × 3 restrictions.
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Appendices
Appendix A
The Joint Harmonised EU Consumer Survey/questionnaires (monthly questions)
Consumer survey
The European consumer survey publishes a confidence indicator based on four prospective questions. In France, it is a monthly survey of 1000 persons.
where the answers obtained from the survey questions are aggregated in the form of ‘balances’, which are constructed as the difference between the percentages of respondents giving positive and negative replies. The exact questions are the following:
Q2 How do you expect the financial position of your household to change over the next 12 months: Will it get a lot better? a little better? stay the same? get a little worse? a lot worse? don’t know.
Q4 How do you expect the general economic situation in this country to develop over the next 12 months? Will it get a lot better? a little better? stay the same? get a little worse? a lot worse? don’t know.
Q7 How do you expect the number of people unemployed in this country to change over the next 12 months? The number will increase sharply? increase slightly? remain the same? fall slightly? fall sharply? don’t know.
Q11 Over the next 12 months, how likely is it that you save any money? very likely? fairly likely? not likely? not at all likely? don’t know.
Appendix B
Econometric specifications
A system of three equations is estimated with a SUR model with two lags (as determined in the section ‘Step 2: Lag order of the model’). In the first equation, the dependent variable is PCI, in the second it is PMCI and in the third one it is CSI. In each equation all variables appear twice (once, pre-multiplied by a dummy variable that equals 1 during the period of cohabitation, and once, pre-multiplied by a dummy variable that equals 1 during the period of non-cohabitation). Each equation therefore has 6 (that is, 2 × 3) variables plus an intercept that are not equal to 0 during cohabitation and 6 variables plus an intercept that are not equal to 0 during non-cohabitation. Each of the three equations (PCI, PMCI, CSI) therefore contains 14 variables.
The system of equation is the following equation (B.1):
The system (B.1) can be written using matrix and vectors notations in a compact form as (B.2):
where φ1 to φ6 are coefficient matrices, cohabitation and usual are dummy vectors that take the value of 1 during, respectively, cohabitation periods and usual presidencies (that is to say ‘non-cohabitation periods’), u t is a vector of random terms serially independent with mean zero and finite covariance matrix.
A likelihood ratio test was performed to test whether the coefficients can be assumed to be equal across the whole sample or whether different coefficients should be allowed during the two ‘regimes’ (cohabitation versus non-cohabitation periods). More specifically, the equality of the following coefficients of system (B.1) is tested:
The log-likelihood of the unconstrained model is L(H1)=−2854.46.
The constrained SUR model (with equal parameters during cohabitation and non-cohabitation periods) is a second-order trivariate VAR model (explaining PCI, PMCI, CSI). The system (B.1) simplifies as the system (B.3):
The constrained model can also be written in a compact form as (B.4):
The log-likelihood of the constrained model is L(H0)=−2899.27.
Appendix C
Orthogonalized impulse responses
Granger causality tests (see panel B of Table 3) establish whether a variable Granger causes another one. Orthogonalized impulse responses are needed to provide additional information on the magnitude and direction. They trace out the response of current and future of one response variable to a one-unit increase in the current value of one of the errors in the impulse variable (the direction, magnitude and duration of the impacts are visible). They have been calculated using the unconstrained SUR model. The matrix of variance-covariance of the error terms of the system is orthogonalized with a Cholesky decomposition. A steady state is chosen for the initial values with all error terms equal to zero. A one-unit shock on one error is simulated. It is assumed that this error returns to zero in subsequent periods and that all other errors are equal to zero. Errors are uncorrelated across equations by construction. The response functions are calculated using the orthogonalized coefficients of the unconstrained SUR model. This has been done for cohabitation periods (when only the coefficients pre-multiplied by the dummy ‘cohabitation’ contribute to the calculation of the response functions). Similarly, it has been also done for non-cohabitation periods.
With nine impulse functions by regime (3 × 3 couples of ‘impulse variable’-‘response variable’), there is a total of 18 impulse functions. They are not presented here but are available upon request. The direction of the impacts is used to complete the discussion of the Granger-causality in the text.
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Flambard, V., Vaillant, N. Consumer sentiment and government confidence: Is there a stable causal relationship?. Fr Polit 12, 310–330 (2014). https://doi.org/10.1057/fp.2014.22
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DOI: https://doi.org/10.1057/fp.2014.22