Advanced Search
MyIDEAS: Login

The predictive power of the European Economic Sentiment Indicator

Contents:

Author Info

  • Gelper, Sarah
  • Croux, Christophe
Registered author(s):

    Abstract

    Economic 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 Info

    If 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.
    File URL: https://lirias.kuleuven.be/bitstream/123456789/120562/1/KBI_0707.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/120562.

    as in new window
    Length:
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:ner:leuven:urn:hdl:123456789/120562

    Contact details of provider:
    Web page: http://www.kuleuven.be

    Related research

    Keywords: Common indicators; Dimension reduction methods; Economic sentiment indicator; Forecasting;

    References

    References listed on IDEAS
    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.:
    as in new window
    1. 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.
    2. Lemmens, A. & Croux, C. & Dekimpe, M.G., 2004. "On The Predictive Content Of Production Surveys: A Pan-European Study," Research Paper 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.
    3. Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2003. "Leading Indicators for Euro-area Inflation and GDP Growth," Working Papers 235, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. WDA Bryant & JE Macri, 2001. "Does Sentiment Explain Consumption?," Research Papers 0107, Macquarie University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. 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.
    2. ?tefan Rychtárik & Franco Stragiotti, 2009. "Liquidity Risk Monitoring Framework: A Supervisory Tool," BCL working papers 43, Central Bank of Luxembourg.
    3. Dudek, Sławomir, 2008. "Consumer Survey Data and short-term forecasting of households consumption expenditures in Poland," MPRA Paper 19818, University Library of Munich, Germany.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ner:leuven:urn:hdl:123456789/120562

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carl Demeyere).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.