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Indicator Models for Private Consumption - Part 1

Since private consumption constitutes the largest component in private consumption, prediction of private consumption is an important part of economic forecasting. Several indicators of private consumption are released ahead of the national accounts. This article examines the usefulness of various indicators in estimating current developments (nowcasting) and future developments (forecasting) in private consumption. According to the analysis, the indicators considerably improve the assessment of current developments in private consumption compared with a simple autoregressive model where current consumption is predicted on the basis of the historical development in consumption. The indicators may also play some role in predicting developments in the coming quarter.