Comment for Surveys and Forecasts Session

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Comment for Surveys and Forecasts Session
Claudia R. Sahm Federal Reserve Board May 13,
2008
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Micro Survey Data Can Inform Macroeconomic
Forecasts

• Test behavioral models and aid in interpreting
  forecasts
• Add covariates to forecast models, such as,
  consumer or business sentiment
• Calibrate special factors, such as tax rebate
  spending propensities

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Example Tax Rebate Question
Consumers are markedly more pessimistic now than
in 2001, so should we expect them to spend more
or less of the current rebates than in 2001?

• Spend Less Precautionary motives
• Spend More Liquidity constrained

Empirical question which effect dominates
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Index of Consumer Sentiment

• Sentiment is 20 points lower than before 2001
  rebates
• More pessimistic about personal and business
  conditions

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Survey Question
This year (it is likely that) tax rebates will be
mailed to most individuals. In most cases, the
tax rebate will be 600 for individuals and 1200
for married couples. Those with dependent
children will receive an additional 300 per
child. Individuals earning more than 75,000 and
married couples earning more than 150,000 will
get smaller tax rebates or no tax rebate at all.
Thinking about your (familys) financial
situation this year, will the tax rebate lead you
mostly to increase spending, mostly to increase
saving, or mostly to pay off debt?
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Previous Research
Similar questions by Shapiro and Slemrod on the
Reuters/UM Surveys of Consumers for 1992 tax
withholding change, 2001 rebates and tax cuts,
and 2003 child tax credits and withholding

• 1992 Shapiro and Slemrod (AER 1995)
• 2001 Shapiro and Slemrod (AER 2003)
• 2003 Coronado, Lupton, Sheiner (WP 2005)

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Rebate Plans in 2008
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Relationship with Sentiment

• Large differences in total sentiment associated
  with small effects on rebate plans
• Patterns differ within economic saving
• Subcomponents tell a richer story

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Data Interpretation Issues

• Difficult to assess the counterfactual
• Use cognitive interviews, survey methods
• Difficult to map to economic theory
• Data is endogenous can add questions
• Intentions may differ from actual behavior
• Survey pre- and post- rebate receipt
• Follow-up questions to clarify plan

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Appendix ICS Questions

• Would you say you (and your family living there)
  are better off or worse off financially than you
  were a year ago?
• Do you think that a year from now you (and your
  family living there) will be better off
  financially, or worse off, or just about the same
  as now?
• Now turning to business conditions in the country
  as a whole -- do you think that during the next
  12 months well have good times financially, or
  bad times, or what?
• Looking ahead, which would you say is more likely
  that in the country as a whole well have
  continuous good times during the next 5 years or
  so, or that well have periods of widespread
  unemployment or depression, or what?
• Generally speaking, do you think now is a good
  time or bad time for people to buy major
  household item?
• See Reuters/UM Surveys of Consumers website for
  more details.