The predictive power of the European Economic Sentiment Indicator
AbstractEconomic sentiment surveys are carried out by all European Union member states on a monthly basis. The survey outcomes are used to obtain early insight into future economic evolutions and often receive extensive press coverage. Based on these surveys, the European Commission constructs an aggregate European Economic Sentiment Indicator (ESI). This paper compares the ESI with more sophisticated aggregation schemes based on two statistical methods: dynamic factor analysis and partial least squares. We compare the aggregate sentiment indicators and the weights used in their construction. Afterwards a comparison of their forecast performance for two real economic series, industrial production growth and unemployment, follows. Our findings are twofold. First it is found that the ESI, although constructed in a rather ad hoc way, can compete with the indicators constructed according to statistical principles. Secondly, the predictive power of the sentiment indicators, as tested for in an out-of sample Granger causality framework, is limited.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/120562.
Date of creation: 2007
Date of revision:
Contact details of provider:
Web page: http://www.kuleuven.be
Common indicators; Dimension reduction methods; Economic sentiment indicator; Forecasting;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hansson, Jesper & Jansson, Per & Lof, Marten, 2005. "Business survey data: Do they help in forecasting GDP growth?," International Journal of Forecasting, Elsevier, vol. 21(2), pages 377-389.
- Lemmens, A. & Croux, C. & Dekimpe, M.G., 2004.
"On The Predictive Content Of Production Surveys: A Pan-European Study,"
ERS-2004-017-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- Lemmens, Aurelie & Croux, Christophe & Dekimpe, Marnik G., 2005. "On the predictive content of production surveys: A pan-European study," International Journal of Forecasting, Elsevier, vol. 21(2), pages 363-375.
- Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2003.
"Leading Indicators for Euro-area Inflation and GDP Growth,"
235, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2005. "Leading Indicators for Euro-area Inflation and GDP Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 785-813, December.
- Banerjee, Anindya & Marcellino, Massimiliano & Masten, Igor, 2003. "Leading Indicators for Euro Area Inflation and GDP Growth," CEPR Discussion Papers 3893, C.E.P.R. Discussion Papers.
- Todd E. Clark & Michael McCracken, 1999.
"Tests of Equal Forecast Accuracy and Encompassing for Nested Models,"
Computing in Economics and Finance 1999
1241, Society for Computational Economics.
- Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
- Todd E. Clark & Michael W. McCracken, 2000. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Econometric Society World Congress 2000 Contributed Papers 0319, Econometric Society.
- Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
- Lemmens, Aurélie & Croux, Christophe & Dekimpe, Marnik, 2005. "On the predictive content of production surveys: A pan-European study," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101089, Katholieke Universiteit Leuven.
- Cherchye, Laurens & Knox, ovell, CA & Moesen, Willem & Van Puyenbroeck, Tom, 2005.
"One market, one number? A composite indicator assessment of EU internal market dynamics,"
Open Access publications from Katholieke Universiteit Leuven
urn:hdl:123456789/119340, Katholieke Universiteit Leuven.
- Cherchye, Laurens & Knox Lovell, C.A. & Moesen, Wim & Van Puyenbroeck, Tom, 2007. "One market, one number? A composite indicator assessment of EU internal market dynamics," European Economic Review, Elsevier, vol. 51(3), pages 749-779, April.
- Laurens Cherchye & Knox Lovell & Wim Moesen & Tom Van Puyenbroeck, 2005. "One Market, One Number? A Composite Indicator Assessment of EU Internal Market Dynamics," Public Economics Working Paper Series ces0513, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
- Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994.
"Does Consumer Sentiment Forecast Household Spending? If So, Why?,"
American Economic Review,
American Economic Association, vol. 84(5), pages 1397-1408, December.
- Christopher D. Carroll & Jeffery C. Fuhrer & David W. Wilcox, 1994. "RATS code for Does Consumer Sentiment Forecast Household Spending? If So, Why?," QM&RBC Codes 49, Quantitative Macroeconomics & Real Business Cycles.
- Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2003.
"Macroeconomic forecasting in the Euro area: Country specific versus area-wide information,"
European Economic Review,
Elsevier, vol. 47(1), pages 1-18, February.
- Massimiliano Marcellino & James H. Stock & Mark W. Watson, . "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- WDA Bryant & JE Macri, 2001. "Does Sentiment Explain Consumption?," Research Papers 0107, Macquarie University, Department of Economics.
- Luca Zanin, 2010. "The relationship between changes in the Economic Sentiment Indicator and real GDP growth: a time-varying coefficient approach," Economics Bulletin, AccessEcon, vol. 30(1), pages 837-846.
- ?tefan Rychtárik & Franco Stragiotti, 2009. "Liquidity Risk Monitoring Framework: A Supervisory Tool," BCL working papers 43, Central Bank of Luxembourg.
- Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carl Demeyere).
If references are entirely missing, you can add them using this form.