Abstract:
This paper investigates whether consumer confidence improves the prediction
of GDP growth over what are popularly construed as fundamental economic variables.
We use monthly data concerning Consumer Confidence Index (CCI) and its sub-indices
to forecast GDP growth for Pakistan. Employing a set of univariate and multivariate
models and comparing their forecasting performance against the Naïve mean model, we
find that adding the consumer sentiments with fundamental economic variables
improves the forecast of GDP growth. Vector autoregressive model with current
economic conditions index and economic fundamentals, we find, performs the best. The
results have potential policy implications in terms of tackling unemployment and
inflation, for economic growth stimulation.
