Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach
AbstractThis paper estimates a simple univariate model of expectation or opinion formation in continuous time adapting a ‘canonical’ stochastic model of collective opinion dynamics (Weidlich and Haag, 1983; Lux, 1995, 2007). This framework is applied to a selected data set on survey-based expectations from the rich EU business and consumer survey database for twelve European countries. The model parameters are estimated through maximum likelihood and numerical solution of the transient probability density functions for the resulting stochastic process. The model's performance is assessed with respect to its out-of-sample forecasting capacity relative to univariate time series models of the ARMA(p; q) and ARFIMA(p; d; q) varieties. These tests speak for a slight superiority of the canonical opinion dynamics model over the alternatives in the majority of cases
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1487.
Length: 39 pages
Date of creation: Feb 2009
Date of revision:
expectation formation; survey-based expectations; opinion dynamics; Fokker-Planck equation; forecasting;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-14 (All new papers)
- NEP-FOR-2009-03-14 (Forecasting)
- NEP-MAC-2009-03-14 (Macroeconomics)
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