Forecasting Consumption with a Canadian Consumer Sentiment Measure

Abstract

Forecasting consumption with a Canadian consumer sentiment measure. This study examines the forecasting potential of a composite index of consumer mood derived from responses to four questions in the Financial Post's 'Quarterly Survey of Consumer Buying Intentions.' Efforts to explain the sentiment measure sto- chastically and to incorporate an endogenous sentiment variable within a small consumption sector model are discussed. Variables reflecting households' price and employment expectations are shown to be important determinants of con- sumer mood and the sentiment functions are found to be relatively stable. Both exogenous and endogenous sentiment variables are shown to enhance the ac- curacy of sample-period simulations and consumption 'forecasts' simulated be- yond the sample-period.