Does Consumers' Confidence Cause Consumption Spending?

Abstract

The present chapter addresses the financial crisis issue in light of its effect upon the interplay between the consumers' confidence upon an economy and consumption spending of the households of the same economy. A simple correlation analysis for the quarterly data from January 1996 to October 2012 shows that the occurrence of the crisis has badly affected the consumers' confidence and consumption spending of the developed countries. Emerging countries have performed well despite the crisis. Also that majority of the developed countries with a few developing ones produce the result of bidirectional causalities whereas in leading emerging countries, consumption spending is making a change in confidence in a ‘causal' sense for the entire period of study. During pre-crisis phase the result show that the leading developed countries experience unidirectional causal relation from consumption to confidence. But in the post crisis phase seven out of twenty countries produce a line of causation going from consumption to confidence and nine countries fail to show any line of causation.