Household deposits and consumer sentiment expectations: Evidence from Eurozone

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 follow-ing a principal component analysis of selected individual answers as part of Eurostat's con -sumer 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, policymak-ers, central bankers, and commercial banks. (c) 2022 Elsevier Ltd. All rights reserved.