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Does confidence data help forecast business cycles? New evidence from Canada

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  • Kevin Moran
  • Simplice Aimé Nono
  • Imad Rherrad

Abstract

This paper assesses the contribution of confidence – or sentiment – data for predicting Canadian economic slowdowns. A probit framework is applied to an indicator of the status of the Canadian business cycle produced by the OECD. Explanatory variables include all available Canadian data on sentiment (from four distinct surveys) as well as macroeconomic and financial data. Sentiment data are introduced either as individual variables, as simple averages (such as confidence indices) and as confidence factors extracted from larger datasets containing all available sentiment data. Results indicate that the full potential of confidence data for forecasting Canadian business cycles obtains when factor models are used and all confidence data are utilized.

Suggested Citation

  • Kevin Moran & Simplice Aimé Nono & Imad Rherrad, 2019. "Does confidence data help forecast business cycles? New evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 51(21), pages 2289-2312, May.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:21:p:2289-2312
    DOI: 10.1080/00036846.2018.1542119
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    Cited by:

    1. Ahmed, Walid M.A., 2020. "Stock market reactions to domestic sentiment: Panel CS-ARDL evidence," Research in International Business and Finance, Elsevier, vol. 54(C).

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