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Self-fulfillment degree of economic expectations within an integrated space: The European Union case study

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  • Emilian DOBRESCU

    (Romanian Academy, National Institute for Economic Research, Centre for Macroeconomic Modelling)

Abstract

This study empirically analyzed the self-fulfillment degree and unbiasedness of expectation-forming mechanisms in the EU. The analysis used the economic sentiment indicator (ESI) and gross domestic product (GDP). Since annual data would fade out the expectational dynamism and the GDP’s monthly series are still missing, the quarterly chain indices (ESIq and IGDPq) were used. Correlation analysis confirmed connections between each EU member state’s economic growth and its own and other EU countries’ economic sentiment indexes. A large preponderance of causal directionality, ESIq→IGDPq, was identified in a Granger sense. To represent the issue purely, the proposed model excluded IGDPq lagged values (with inherent multicollinearities) and any other leading indicators (which would blur the impact of expectations) from the explanatory variables. Using the seemingly unrelated regression technique, the system (28 equations with 745 coefficients) provided econome¬trically acceptable results, proving a relatively high self-fulfillment degree of economic expectations at a regionally integrated scale.

Suggested Citation

  • Emilian DOBRESCU, 2020. "Self-fulfillment degree of economic expectations within an integrated space: The European Union case study," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-32, December.
  • Handle: RePEc:rjr:romjef:v::y:2020:i:4:p:5-32
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    More about this item

    Keywords

    correlation analysis; economic sentiment index; Granger causality; integrated space; model accuracy; self-fulfillment degree of expectations;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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