Jef Vuchelen

Consumer sentiment and macroeconomic forecasts

Business cycle analysts traditionally interpret consumer sentiment data as containing information about current and future consumer behaviour. One important attraction of these survey data is that they are readily available on a monthly basis. The evidence is mixed as to whether the information content of consumer sentiment can be captured by economic and financial variables such as interest rates, unemployment, stock market indices, etc. It is striking that often reference is made to variables capturing expectations and to the uncertainty surrounding these expectations, but that this is based on ad hoc interpretations of significant coefficients of variables as unemployment or inflation. We propose a more direct measure of expected economic conditions and uncertainty. More precisely, the average or consensus growth rate and the dispersion of forecasts (standard deviation or difference between maximum and minimum forecast) are tested in regressions for the sentiment of Belgian consumers. Both variables improve the quality of the regression dramatically.

Political events and consumer confidence in Belgium

Abstract The paper investigates the impact of political events on consumer confidence. In doing so, we distinguish between the announcement of elections, the election results and government changes. We argue that such political events alter the expectations of consumers on future policies. In a two-party political system, election results lead straightforwardly to a new government so a government formation will not be of interest to consumers. In a multiparty political system, however, the government will usually be made up of several parties; i.e., be a coalition government. The election results do not, therefore, resolve the policy uncertainty. Hence, a government formation contains important information about future policies. We test the theory on Belgian consumer confidence data. The results suggest that unexpected elections and new governments affect consumer confidence; ideology is not important. In the tests we control for the effects of economic variables. These results imply that political events by themselves can indeed affect economic variables. Caution is therefore required when interpreting tests of political business cycles.

The contribution of consumer confidence indexes in forecasting the effects of oil prices on private consumption

Abstract In this article the contribution of consumer confidence indexes in forecasting consumption expenditures is analysed. In the first part equations explaining the consumer confidence index (CCI) in four major European countries (Germany, Italy, United Kingdom and France) are estimated by a few exogenous variables (oil prices, interest rates, exchange rates and the U.S. stock market index) are estimated. In the next section these equations are used to forecast the CCI for 1986. We then present equations explaining private consumption by using the CCI. In the final section a comparison is made between forecasts of consumption expenditures for 1986 obtained by using the observed and the predicted CCI. The forecasts obtained by using the predicted CCI tend to overestimate the positive impact of the recent drop in oil prices on consumption expenditures. The conclusions support the view that consumer surveys do contain original information since their use reduces, in general, the forecasting errors.

Do the OECD 24 month horizon growth forecasts for the G7–countries contain information?

The OECD produces two–year–ahead growth forecasts for the G7–countries since 1987; these forecasts have never been evaluated. A regression is developed that tests for the information content of the forecasts. The idea is that this content is the added value forecasters incorporate in their forecasts. The information content is defined relative to the forecast for the previous year. In the end, the added value contained in the current year forecast is calculated relative to the last observation. The test consists in checking whether the information content reduces the forecasts error. 1 The authors of the present study refer to Mincer and Zarnowitz (1969), McNees (1988), Stekler (1991) and Fildes and Stekler (2002) for a discussion of the evaluation techniques of forecasts. The study begins with a calculation of the usual accuracy statistics. These indicate an extreme low quality for the forecasts. The regression tests support this conclusion although the forecasts for Japan do possess some information. Alarming for users of forecasts is that there are no obvious alternatives.

An early evaluation of the introduction of euro banknotes and coins

The final stage of the changeover to the euro consisted of the introduction of euro coins and banknotes on 1 January, 2002. The national changeover plans, that provided the scenarios, were based on the exclusive transaction function of money. However, in most European countries high‐denomination banknotes were significantly hoarded and/or used in the underground economy. Since the holders of these banknotes could not convert them anonymously in the two months changeover period, some feared that many banknotes would invade the payment system, leading to a cash‐crash. Nevertheless the changeover process evolved smoothly. As for the future, chances are that some users in the regular sector have permanently changed their payment habits by shifting towards electronic means of payment. In the longer run we believe, however, that the tolerant attitude of the authorities with respect to currency use in the underground sector, will sustain the demand for currency.

The exchange market announcement effects of Belgian discount rate changes

Abstract In this study we analyze the announcement effects of changes in the Belgium discount rate on the foreign exchange market. Our methodology involves two steps. First, we estimate time series models up to the day preceding a discount rate change and use these models to forecast the exchange rates. In a second stage we test whether the forecasting errors contain an announcement effect. The results indicate that a destabilizing announcement effect of discount rate changes can be found on the official market for the German mark.

Quantitative monetary policies and the portfolio composition of commercial banks

Abstract In this paper two quantitative monetary policy instruments imposed on commercial banks, i.e., a loan ceiling and an investment coefficient are analysed. The loan policy imposes a ceiling on the amount lent to the private sector; an investment coefficient imposes a floor on credits granted to the government. Both instruments facilitate, through different channels, the finance of government deficits. For the two instruments two scenarios are contrasted: a moral suasion and an imperative policy scheme. The first policy is pursued if no sanctions are imposed by the central bank; the second scheme applies if such sanctions are part of the policy.