Unemployment, Consumer Confidence, Business Confidence, Inflation and Monetary Policy
13 Pages Posted: 16 Sep 2012 Last revised: 19 Sep 2013
Date Written: September 14, 2012
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: Suggested Citation