Notwithstanding the numerous applications of fuzzy logic in several fields of economics, it is surprising that, to the best of our knowledge, so very few applications have been made in modelling approximations of subjective economic variables, such as confidence, satisfaction or even expectations, by objective ones, such as unemployment, output or inflation. This gap in the literature is accompanied by a lack on the availability of data concerning those subjective variables. Given that one of the main concerns of fuzzy logic is to capture approximate rather than exact forms of reasoning, and this also characterises many economic situations, such as in fact forming intrinsically subjective measures of confidence, this logic can and should indeed be used to understand how some of those subjective measures can be approximated by objective ones. This task is accomplished in the paper by the use of data on consumer confidence and on the unemployment rate for the pre-enlargement fifteen European Union member states. The results indicate the clear importance of unemployment on confidence, which is a result that should be taken into account when analysing policy-making that, from a naïve and/or easy viewpoint, considers confidence as a relevant variable but ignores unemployment.
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Paper provided by University of Évora, Department of Economics (Portugal) in its series Economics Working Papers with number
1_2005.
Find related papers by JEL classification: C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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