Annual Report 2018
Economics
THE POLITICAL ECONOMY OF CONSUMER
CONFIDENCE IN BRAZIL
The analysis of date from the period from September 2005 to October
2016 confirms that the confidence of Brazilian consumers reacts
to fluctuations in macroeconomic variables like the exchange rate
and unemployment rate, and is also influenced by economic uncertainty
and the tone of media coverage. However, electoral cycles and political
scandals appear not to affect Brazilians' confidence in the economy.
Curiously, neither electoral cycles nor political scandals appeared to be relevant to Brazil-
ian consumers in the period analyzed.
A possible reason for this is the fact that there was no alternation of political parties
during the period studied. The elections mattered to the extent they portended unfore-
seen political and economic changes, and in this sense it is not surprising that the conti-
nuity did not lead to changes in confidence.
On the other hand, it is somewhat surprising that political scandals did not have an effect
on confidence, since it is natural to assume they are related to political uncertainty that
will affect the future performance of the economy.
CONTRIBUTIONS OF THE STUDY
•
There are no studies published in the main academic periodicals on the confidence of
consumers in emerging economies. The study helps to fill this gap in the literature by
examining how political and economic factors, both domestic and international, along
with the tone of economic news in the media, contribute to explain consumers' confi-
dence in Brazil.
OBJECTIVE
•
•
To study the political and economic factors that influence consumer confidence and to
contribute to the development of governmental actions to strengthen this confidence.
RESEARCH METHOD
•
The project analyzed the monthly values of the Index of Consumer Confidence (ICC) pro-
duced by FGV IBRE in the period from September 2005 to October 2016.
The study contemplated the usual macroeconomic aggregates included in the literature,
as well as exogenous economic shocks, political events and the tone of media coverage
of the economy.
The starting point was standard error correction models to investigate the short- and
long-run influences of the explanatory variables on the confidence level of consumers.
Considering the potential endogeneity between the series, we also used vector error cor-
rection models (VECMS), in this case only for monthly changes in sentiment.
Each of these models was applied using four different specifications:
1. Domestic macroeconomic variables (gross domestic product - GDP, unemployment,
inflation, income, interest rates and exchange rate);
2.
Variables that can capture the optimism associated with coming elections, as well as
the expectations that can follow them, in the periods from 1 to 6 months before and
after elections, and the honeymoon effect during the first six months of the presi-
dential term;
A variable denoting economic uncertainty;
3.
4.
A variable representing the impact of the international scenario.
APPLICATIONS OF THE RESULTS AND POSSIBLE EXTENSIONS OF THE STUDY
•
To develop a method to study the political economy of confidence that can be used by
other centers, particularly in Latin America, that produce (or have the potential to pro-
duce) similar indexes.
We are working on alternative specifications for the model, especially to identify a vari-
able to represent political scandals that can reflect Brazilian reality more precisely that
that adopted so far.
In this respect, we are working to improve the measures with the aim of more accurately
capturing the effects of the political instability that marked the period studied and its
effects on consumers' confidence.
RESULTS
.
As expected, economic conditions had a long-term influence on consumer confidence.
It increased with economic growth and decreased with higher interest rates and weaker
exchange rates. These effects were observed both in the short and long terms, and in
all the specifications. The results also revealed the impact of economic uncertainty and
media coverage on consumer sentiment.
The negative impacts of inflation and unemployment were significant only in the short
term, while income was never significant at the standard levels.
Inflation was significant in some models, but lost explanatory power in the presence of
media coverage of the economy.
Economic uncertainty had a negative effect on confidence both in the short and long runs.
Positive media coverage of the economy (inflation and unemployment) strengthened
confidence, suggesting that part of the effect of economic variables is channeled through
the perceptions created by media reporting about the economy.
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AUTHORS:
Aloisio Campelo and Daniela Campello.
RESEARCHERS:
Fernando Ormonde Teixeira and Viviane Seda Bittencourt.
ORGANIZATION:
Brazilian Institute of Economics (IBRE) and Brazilian School of Public and Business
Administration (EBAPE).
SUPPORT:
Applied Research Fund (FPA FGV).
Annual Report 2018
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RESEARCHView entire presentation