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Social Indicators Research

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06.08.2019 | Original Research

Consumer Confidence and Household Saving Behaviors: A Cross-Country Empirical Analysis

verfasst von: Willem Vanlaer, Samantha Bielen, Wim Marneffe

Erschienen in: Social Indicators Research | Ausgabe 2/2020

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Abstract

The global financial crisis wreaked havoc on the European economy and dented consumer confidence. This paper exploits a panel dataset of 18 EU countries over the period 2001–2014 to examine whether this decrease in consumer confidence affected household saving behaviors and if so, which specific sub-indicators of consumer sentiment played the most significant role. To tackle the issue of potential endogeneity between household saving rates and consumer confidence, we use an instrumental variable approach. Our results suggest that confidence in household financial situations has a substantially larger effect on household saving than confidence in the general economic situation. Moreover, we find that the impact of consumer confidence on household saving has increased after the crisis, potentially due to a threshold effect.

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For example, the European Central Bank (ECB) missed its policy target, a headline rate of inflation at close to but below two percent—for over 5 years (ECB European Central Bank 2011).

Peter Praet, chief economist and member of the Executive Board of the ECB, said as much in a recent interview with La Repubblica: “Yes, all central banks can do it. You can issue currency and you distribute it to people. That’s helicopter money. Helicopter money is giving to the people part of the net present value of your future seigniorage, the profit you make on the future banknotes.” (Praet 2016)

Only Malta reduced its ratio of public debt-to-GDP, from 62.3% in 2007 to 60.3% in 2015.

The presence of hysteresis was originally discussed in the context of labor markets (Blanchard and Summers 1986).

For a detailed explanation on how this indicator is calculated, see https://ec.europa.eu/info/files/user-guide-joint-harmonised-eu-programme-business-and-consumer-surveys_en.

The results of the survey used to construct the indicators have been discussed to explain evolutions in households’ spending decisions (e.g., ECB 2011), but these confidence indicators have not yet been introduced in a cross-country analysis of household saving behaviors.

However, there might also be a substitution effect. Falling interest rates decrease the reward for saving, making it more attractive to spend.

This argument was first advanced by Keynes (1936), who argued that economic fluctuations are largely driven by “animal spirits.” In other words, low confidence makes consumers spend less and save more, and makes firms reluctant to invest and hire. The resulting decline in incomes further undermines consumer and producer confidence.

In addition to being proxies for uncertainty, consumer confidence indicators could also reflect expected income growth (Dominitz and Manski 2004), unemployment, inflation (Barsky and Sims 2012) and non-economic factors (e.g. political tension or war) that influence households’ willingness to save (Acemoglu and Scott 1994).

As expansionary fiscal policy improves consumer and business confidence (e.g., Konstantinou and Tagkalakis 2011), an example of such an EU-wide policy would be a concerted fiscal stimulus in response to an economic downturn, similar to what was presented at the 2009 G20 summit, in which global leaders agreed to inject $1.1 trillion into the world economy.

Due to data limitations, an analysis of all EU countries was not feasible. The countries retained in our analysis are: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Portugal, Slovakia, Slovenia, Spain, and the United Kingdom.

These five candidate countries are Albania, Montenegro, North Macedonia, Turkey, and Serbia.

The specific data source for each variable is mentioned in footnotes when discussing the variable.

Measured as savings without deducting consumption of fixed capital.

Data from AMECO.

Households dissave when spending exceeds income.

For further methodological guidance, see DG ECFIN (2016).

Data from Eurostat.

In a standard Keynesian framework, consumption and saving mainly depend on current income. However, Ando and Modigliani (1963), and Friedman (1957) argue that consumption and saving decisions are not only driven by current income, but also by the income individuals expect to receive in the future.

Both data from AMECO.

Data from Eurostat.

Data from the World Bank.

Data from AMECO.

This mechanism is not confined to postponing purchasing durable consumer goods. When households have low confidence in the evolution of their personal financial situation, they will be less inclined to spend a significant amount of their disposable income on vacations, as this is considered a luxury expense that can easily be forgone for a while.

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Titel: Consumer Confidence and Household Saving Behaviors: A Cross-Country Empirical Analysis
verfasst von: Willem Vanlaer
Samantha Bielen
Wim Marneffe
Publikationsdatum: 06.08.2019
Verlag: Springer Netherlands
Erschienen in: Social Indicators Research / Ausgabe 2/2020
Print ISSN: 0303-8300
Elektronische ISSN: 1573-0921
DOI: https://doi.org/10.1007/s11205-019-02170-4

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