Household deposits and consumer sentiment expectations: Evidence from Eurozone

Abstract

This paper examines whether new refined measures of consumer sentiment expectations exert a significant effect on household deposit flows across Eurozone’s member countries. The new measures of sentiment-based expectations of consumers are constructed following a principal component analysis of selected individual answers as part of Eurostat’s consumer sentiment survey across the Eurozone’s member countries. Employing a Bayesian panel VAR model to increase the accuracy of our results, we document that a (positive) shock on consumers’ sentiment expectations triggers an imminent positive response of household deposits that gradually reverses during the next 2–3 months. This main result extends and complements traditional explanations for depositors’ behavior in the extant literature. Our results have important implications for Eurozone’s households, policymakers, central bankers, and commercial banks.