Unemployment, Consumer Confidence, Business Confidence, Inflation and Monetary Policy

13 Pages Posted: 16 Sep 2012 Last revised: 19 Sep 2013

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: September 14, 2012

Abstract

This study examines how unemployment rate dynamically responds to shocks to consumer confidence, business confidence, inflation and monetary policy. Based on the vector autoregressive (VAR) analysis of the monthly data from 1978:M2 to 2012:M5, the results show that unemployment negatively responds to shocks to consumer confidence and business confidence. While consumer confidence is not responsive to FED interest rate shock, business confidence negatively responds to FED fund interest rate shock. The results also show consumer confidence and business confidence Granger-cause unemployment, and inflation Granger-causes consumer confidence. However, inflation and Fed Fund interest rate do not Granger-cause unemployment movement. For the 12-month horizon, the unemployment forecast error is 71% due to its own shock, 11% due to consumer confidence shock, 13% due to business confidence shock, 1.10% due to inflation shock, and 3% due to Fed Fund interest rate shock.

Keywords: unemployment, business confidence, consumer confidence, inflation, monetary policy

JEL Classification: E52, E58

Suggested Citation

Sum, Vichet, Unemployment, Consumer Confidence, Business Confidence, Inflation and Monetary Policy (September 14, 2012). Available at SSRN: https://ssrn.com/abstract=2146497 or http://dx.doi.org/10.2139/ssrn.2146497

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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