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Can confidence indicators be useful to predict short term real GDP growth?

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Abstract

We investigate the usefulness of the European Commission confidence indicators in forecasting real GDP growth rates in the short-run in selected euro areas countries (Belgium, Spain, Germany, France, Italy and the Netherlands) which account for almost 90% of the euro area. We estimate a linear relationship between real GDP and confidence indicators and we compare the forecasting performance of the estimated models with a benchmark ARIMA model. We generally find that confidence indicators can be useful in forecasting real GDP growth rates in the short run in a number of countries (Belgium, Germany, France, Italy and the Netherlands). Notwithstanding some signs of instability in the relation between confidence indicators and real GDP, improvements with the use of time-varying parameter models appear to be fairly limited but confirm the findings obtained with constant parameter techniques. The results obtained are robust to a wide range of variant tests implemented. JEL Classification: C22; E27.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 133.

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Length: 49 pages
Date of creation: Mar 2002
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Handle: RePEc:ecb:ecbwps:20020133

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Keywords: Forecasting real GDP; confidence indicators; Kalman filter.;

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References

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  1. Rebecca A Emerson & David Hendry, 1994. "An evaluation of forecasting using leading indicators," Economics Papers 5., Economics Group, Nuffield College, University of Oxford.
  2. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," The Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January.
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Cited by:
  1. António Caleiro, 2007. "Confidence and Unemployment in the European Union: A lesson from the 2004 enlargement," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 26, pages 15-26, December.
  2. Aleksejs Melihovs & Svetlana Rusakova, 2005. "Short-Term Forecasting of Economic Development in Latvia Using Business and Consumer Survey Data," Working Papers 2005/04, Latvijas Banka.
  3. Lucia F. Dunn & Ida A. Mirzaie, 2006. "Turns in Consumer Confidence: An Information Advantage Linked to Manufacturing," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 343-351, April.
  4. Gerhard Rünstler & Franck Sédillot, 2003. "Short-term estimates of euro area real GDP by means of monthly data," Working Paper Series 276, European Central Bank.
  5. Pilar Bengoechea & Gabriel P�rez Quir�s, 2004. "A useful tool to identify recessions in the euro area," European Economy - Economic Papers 215, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Brigitte Desroches & Marc-André Gosselin, 2002. "The Usefulness of Consumer Confidence Indexes in the United States," Working Papers 02-22, Bank of Canada.
  7. Laurent Ferrara & Clément Marsilli, 2013. "Financial variables as leading indicators of GDP growth: Evidence from a MIDAS approach during the Great Recession," Applied Economics Letters, Taylor and Francis Journals, vol. 20(3), pages 233-237, February.
  8. Roman Horvath, 2012. "Do Confidence Indicators Help Predict Economic Activity? The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 398-412, November.
  9. Ramalho, Esmeralda A. & Caleiro, António & Dionfsio, Andreia, 2011. "Explaining consumer confidence in Portugal," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 25-32, February.
  10. Antonio Caleiro, 2006. "How is confidence related to unemployment in Portugal?," Applied Economics Letters, Taylor and Francis Journals, vol. 13(13), pages 887-890.

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