9/2025 Jean-Paul L’Huillier, Robert Waldmann, Donghoon Yoo. What is consumer confidence?
Working Papers of Eesti Pank 9/2025
This paper offers a structural interpretation of survey-based measures of consumer confidence. To this end, we consider a simple consumption model based on permanent income logic and estimate it using national accounts. In our framework, consumers receive noisy information about the future and make consumption decisions. Based on this setup, we construct a modelimplied measure of consumer confidence and extract it from the data. We show that the model-implied measure corresponds well to fluctuations in confidence survey data for the U.S. and a host of European countries. Our analysis provides an informational mechanism to interpret these widely used confidence indices.
Keywords: Aggregate spending, confidence indices, noisy information
