What drives US consumer confidence? The asymmetric effects of economic uncertainty

Abstract

This paper empirically investigates the asymmetric effects of different economic variables including uncertainty caused by government policies on the two main US consumer confidence indices. This paper further investigates whether COVID-19 has any significant effect on the relationship between US consumer confidence indices and their determinants. The empirical investigation is conducted by means of non-linear asymmetric autoregressive distributed lag (NARDL) tests, so that the asymmetric effect of uncertainty and other determinants on consumer confidence may be studied. The paper applies monthly data from January 2010 to December 2021. Results indicate that the COVID-19 pandemic did not alter the stability of the long-term relationship between the consumer confidence indices and their determinants. Uncertainty imposed by government policies plays a significant role before and, more prominently, during the pandemic. The increased effect of the uncertainty may be due to the jump in economic uncertainty during the COVID era. Our work may help to foster consumer confidence in terms of macroeconomic policy variables. The results can also expand the scope of investors' decision making as it provides an in-depth understanding of the drivers of consumers' confidence in the US economy.