World Economy

World Economy

Length: 700 words (2 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Matsusaka & Sbordone (1995) used quarterly data from 1953 to 1988 to empirically investigate the relationship between consumer confidence and Gross National Product in the United States. Using vector auto regressions Matsusaka ( 1995) & Afshar, Arabian, Zomorrodian (2007) examined the effect of pure confidence on GNP by implementing control variables such as the Index of leading indicators & Consumer price index respectively; finding that confidence granger caused GNP for 1, 2, 3 & 4 quarter lag models. Through forecast error variance decompositions they concluded that 12%-26% & 8-23% of the variation in GNP can be attributed to consumer confidence. The slight variations in the decompositions can b accounted for by variable orderings and differing time periods.
Similarly Utaka (2003) applied the same methodology used by Matsusaka & Sbordone(1995) to empirically investigate this relationship in the case of Japan. By using not only quarterly data, but monthly and semi annual data from 1980q1- 2000q3 they reconfirmed the consumer confidence- GDP relationship for Japan and found that it accounted for 9%-11% of variation in GNP. This showed smaller variation for Japan illustrating that confidence indicators influence on GDP movements are country dependent making it unwise to assume uniform relationship strength across countries.
Golinelli & Parigi (2004) investigated this matter by analysing the consumer confidence relationship in eight country’s from 1970-2002. They modelled the CCI-GDP relationship using a co-integrated vector auto regression using a common set of macroeconomic variables that were country specific to control for correlation being driven by other variables; therefore avoiding the limits of the single equation approach found in previous literature. They tested the forecasting power by comparing the RMSE for unrestricted and restricted models for 1, 2 & 4 steps horizons. Golinelli (2004), Mourougane & Roma (2002), Taylor & Mcnab (2007) find that RMSE was generally lower in the unrestricted model at short term horizons (1-2 steps) for EU countries, illustrating its importance in short term forecasting.
Much of previous literature has aimed at establishing whether consumer confidence indexes provide additional information in comparison to macroeconomic variables and not its forecasting power. However, these have received mixed results in most cases, yet it is acknowledged they maintained an autonomous role in forecasting, (see “Mueller 1963, Adams 1964, Suits &sparks 1965, fair 1971 a & 1971b, Adams & Klein 1972”). Opinion now acknowledges that the index can help predict economic activity (see “Garner 1991, Fuhrer 1993; Carol et al 1994, Kumar et al 1995, Bran & Ludvigson 1998, Eppright et al 1998”)

How to Cite this Page

MLA Citation:
"World Economy." 123HelpMe.com. 03 Apr 2020
    <https://www.123helpme.com/view.asp?id=220334>.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on Positive and Negative Impacts of the U.S. Economy on the World

- ... Still in many developing countries and in the countries the problem of development is not solved with a transitional economy. They depend on the help of the USA. America is the leader of agricultural industry because the USA makes more agricultural material, than any other country. If superpowers don't start helping these countries, these countries won't pass to the best to economy. And the USA is a most large exporter of agricultural products. The America has 35% of world export of wheat, 69% of corn, soybeans, 25% of cotton, 18% of rice, 12% of tobacco (National Agricultural Statistics Services)....   [tags: market, influence, world economy]

Research Papers
939 words (2.7 pages)

Essay about Impact Of Globalization On The World Economy

- In recent decades, we have seen a large movement in manufacturing goods; corporations have moved from First World countries to Third world countries. This economic trend is called globalization: “the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture” (Globalization 101). This event was caused by the obligation that companies have to their shareholders to increase profits. Globalization has been nourished along with advancement in shipping and communication.This has a dramatic effect on the world economy, it has made most wealthier than they were previously....   [tags: Third World, United States, Containerization]

Research Papers
1376 words (3.9 pages)

Essay on Globalization And Its Impact On The World Economy

- Mâdâlina Mangra, Marieta Stanciu’s and Gabriel Mangra truly allow their honest analysis of globalization and thought process to be abundantly clear in their article, Globalization – A Contradictory but Offensive Process (Mangra & Stanciu p. 81). In just reading, the title readers are instantly aware of where the authors are going to be challenging their perspectives. Mangra and Stanciu state that, “globalization can be defined as the consolidation and expansion of the relations between the national economies on the goods, services and capitals’ global market” (Mangra & Stanciu p....   [tags: Economy, Economics, Globalization]

Research Papers
731 words (2.1 pages)

Free World Economy Essay

- In Money, Markets and Sovereignty Steil and Hinds argue that globalization is beneficial for all but because of the uncertainties of the current monetary system governments and globalization clash as governments work to protect their currency. They argue that because of the perceived stability of the dollar the in order to create the most open and prospers economy developing countries should use the dollar in favor of the local currency (131). They show the historical benefits of using the gold standard instead of paper (fiat) money but they also show that it unadvisable for the United States to go back to the gold standard at this point in time (68)....   [tags: Economy, Currency, Dollar]

Free Essays
667 words (1.9 pages)

Globalization And Its Impact On The World Economy Essay

- Abstract The ideologues trust that globalization prompted fast industrialization and financial union on the planet economy amid the late nineteenth century (Sachs and Warner, 1995). In their perspective, the guarantee of the developing worldwide entrepreneur framework was squandered for more than a large portion of a century, regardless by three decades of contention and autarchy that took after the First World War and consequently, for an additional three decades, by the communist way and a measurement world perspective....   [tags: World Trade Organization, International trade]

Research Papers
716 words (2 pages)

Social Security And The World Economy Essay

- Imagine a room filled to the brim with dominoes, overlapping, supporting each other in a way so complex that the simplest of catalysts, a single domino falling, can rearrange and deface the entire structure itself. This wondrous structure, a pyramid relying on numerous and uncountable amounts of bases is one of true architectural beauty and elegance. Now, lets imagine this structure again, but this time with a domino tipping over. This seemingly unimportant occurrence eventually reveals itself when the structure is left in shambles within seconds, for one dominos fall results in the consecutive fall of many, if not all others....   [tags: Unemployment, Economics, United States, Dominoes]

Research Papers
727 words (2.1 pages)

Integrating Women into the World Economy Essay

- Integrating Women into the World Economy Introduction On November 9, 1989, the world’s economy changed dramatically. The fall of the Berlin wall produced a new world order which enabled states to connect on political, economic, and social levels with nations that were previously inaccessible to the western world. This created an interaction across national boundaries. The past two decades have seen the growing economic interdependence of countries worldwide, including an increased volume of cross-border transactions of goods and services, international capital flows, and most importantly, the rapid and widespread diffusion of technology (“Economic and Social Survey of Asia and the P...   [tags: Economics Females Essays Papers]

Research Papers
2168 words (6.2 pages)

Essay on World Economy

- Matsusaka & Sbordone (1995) used quarterly data from 1953 to 1988 to empirically investigate the relationship between consumer confidence and Gross National Product in the United States. Using vector auto regressions Matsusaka ( 1995) & Afshar, Arabian, Zomorrodian (2007) examined the effect of pure confidence on GNP by implementing control variables such as the Index of leading indicators & Consumer price index respectively; finding that confidence granger caused GNP for 1, 2, 3 & 4 quarter lag models....   [tags: Consumer Confidence]

Free Essays
700 words (2 pages)

Mergers in the World Economy Essay

- Mergers in the World Economy . "Monopoly is a great enemy to good management which can never be universally established but in consequence of that free and universal competition which forces every body to have recourse to it for the sake of self-defense" (Smith, 1776: 63). Adam Smith found that monopolies were a negative aspect for an economy therefore supporting competition among firms in order to protect one’s firm. Competition policy affects the nature of firms and policy makers in today’s global economy....   [tags: Economics Wealth Papers]

Research Papers
3807 words (10.9 pages)

Essay on Globilization and the World Economy

- Globilization and the World Economy Globalisation in general means the effort of a company moving into other territories (outside the national boarders of a country) to sell its goods and services to increase profits as a result of expansion. Globalisation incorporates both opportunities and risks which change the way businesses are managed worldwide. It brings about a well-diversified portfolio for such a company. This is because the company is guarding itself from huge losses in case of economic uncertainty....   [tags: Papers]

Research Papers
1384 words (4 pages)

Related literature in the case of Carroll et al (1994) found that consumer confidence did have forecasting capabilities in regard to predicting household expenditure. Consumption accounts for two thirds of US GDP & such factors that drive consumption must in essence drive GDP. This coupled with Katona’s (1972) proposal that consumer confidence indicators are merely a representation of consumer ‘willingness to buy’ and expectations of an economy it seems appropriate to investigate whether consumer confidence can predict GDP growth and how they differ across countries.

It is important to note, the majority of previous investigations have used single equation/bi-variate approaches and have paid little or no attention to the multivariate relationship between confidence and other macroeconomic variables. Insufficient attention is paid to the behaviour of the index in different periods, i.e. how well consumer confidence reacts in shock periods and the cross country variations. Katona's (1973) suggestion that consumer confidence is influenced by psychological factors appear to have more importance when these crisis events occur (at times people are more likely to alter their mind frame) peoples answer to questions on their well being seem to be dependant, not on their absolute wealth but their relative wealth compare to their neighbours and hence (keeping up with the Joneses) really does become significant.
However not all literature agrees with the view of confidence index forecasting powers. Emerson & Hendry (1994) use a Vector auto regression to find that leading indicators add no addition information in forecasting. Authors have studied leading indicators concluding limitations are numerous, due to the fact they are frequently revised and open to subjectivity. Weale (1996) finds they do not lead for long however Stock & Watson (1992) state the choice of the indicators chosen for any model is the absolute key source of uncertainty in a model specification and forecasting..

Return to 123HelpMe.com