Can consumption predict advertising expenditures? The advertising-consumption relation before and after the dot-com crisis in Germany

Abstract

Two contradictory schools of thought—the activists and the determinists—predict that either diffusion of knowledge (e.g., through advertising) leads to economic growth or that economic growth increases marketing and advertising activities. This study assesses the causal relation between corporate advertising expenditures and private consumption applying vector autoregressive (VAR) models to aggregate German quarterly data from 1991 to 2009. Results indicate a break in the advertising-consumption relation after the dot-com crisis. Hence, the macroeconomic advertising-consumption relation is not stable over time. Since 2001, consumption has Granger-caused advertising expenditures. This change suggests a higher relevance of consumer behavior for advertising budgeting decisions