Attention based Sentiment and Household Consumption

Abstract

This doctoral thesis investigates the role of sentiment derived from online search behavior in explaining and predicting private consumption within the European Single Market. Using Google Trends Index (GTI) as a novel, high-frequency, and low-cost sentiment indicator, the study addresses key gaps in existing literature that often rely solely on traditional survey-based measures. The research first constructs a country-specific GTI for the Czech Republic (2005Q1–2022Q1) based on keyword search heat, employing principal component and factor analysis to extract sentiment indicators. Time-series methods, including cointegration and forecasting assessments, demonstrate the GTI’s strong capacity to track and predict consumption fluctuations more effectively than the Consumer Confidence Index (CCI). The analysis is then extended to a multi-country panel covering the EU-27 and the UK (2004Q1–2024Q4), where four GTI sub-indices (total, services, durable goods, non-durable goods) are constructed from Google category data. Incorporating macroeconomic controls (real wages, inflation, unemployment, and bond yields) within a fixed-effects framework, the findings show that GTI has the most significant and robust impact on services consumption, while its effect on durable goods is weaker. In contrast, CCI is strongly associated with non-durable goods consumption. During major economic crises, such as the 2008–2009 global financial crisis and the 2020–2021 Covid-19 crisis, GTI signals provide timely insights into service consumption adjustments, whereas CCI offers complementary short-term predictive value for non-durable goods. Overall, the study highlights GTI’s superiority in capturing real-time sentiment-driven consumption dynamics across European countries, particularly in the services sector, and underscores its value for policymakers in designing responsive macroeconomic strategies. The contributions include constructing multidimensional GTI indices, systematically comparing GTI and CCI, and extending sentiment research to the EU’s integrated yet heterogeneous market.