Fickle Consumers, Durable Goods, and Business Cycles

Understanding the impact of changes in consumer confidence on hotel stock performance in Taiwan

“…Matsusaka and Sbordone (1995) find evidence of a causal link between changes in gross national product (GNP) and consumer confidence and concluded that 13-26% of variation in GNP can be attributed to consumer confidence. The primary channel through which changes in consumer sentiment may affect aggregate spending is by the purchase of consumer durables (Weder, 1998). According to Howrey (2001), consumer confidence is a statistically significant predictor of the future real gross domestic product (GDP) growth rate and the probability of the economy entering into a recession.…”

“…In particular, consumer confidence may play an important role in business cycle fluctuations (Chen, 2011). Movements in consumer confidence are important leading indicators in (commercial) business cycle forecasting (Weder, 1998). Moreover, Blanchard (1993) finds a strong connection between the early 1990s recession and E-mail address: ming-hsiang.chen@wsu.edu the consumption shocks resulting from a decline in confidence.…”

Determinacy through intertemporal capital adjustment costs

“…1 Since the required strength of the externalities is mild and can be defended empirically, local indeterminacy, and the implied possibility of self-fulfilling business cycles, started to look rather plausible. Numerous recent studies have therefore looked at self-fulfilling business cycles in two-sector models, such as Perli (1998), Weder (1998), Schmitt-Grohé (2000), and Harrison and Weder (2001) to name only a few.…”

Effect of Investor Sentiment on Stock Markets

“…(see Weder, 1998;Howrey, 2001;Bremmer, 2008;Chen, 2011 and i.e) Here it is logical to expect a relationship between stock returns and consumer sentiment. By assuming that consumer confidence index is a proxy for investor sentiment, existence of such a relationship will be investigated during this study.…”