Denoised Least Squares Forecasting of GDP Changes Using Indexes of Consumer and Business Sentiment
Indexes of consumer and business sentiment are frequently characterized by measurement errors and short-term cyclical fluctuations that can distort their predictive accuracy for GDP changes. While measurement errors arise due to the survey sampling procedures that characterize these surveys, short-term cyclical fluctuations are generally linked with various exogenous and irregular factors that are not necessarily related to the economy. This paper shows, using data on the US economy, that applying wavelet denoising on indexes of consumer and business sentiment in the context of the linear regression model can overcome these limitations and can provide: (a) efficient coefficient estimates in models that explain consumer sentiment index variation; and (b) consistent coefficient estimates and predictions in models for GDP changes when using consumer and business sentiment indexes as predictors.
|Date of creation:||Oct 2010|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1|
More information through EDIRC
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.:
- E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 175-216.
- Lemmens, A. & Croux, C. & Dekimpe, M.G., 2007. "Consumer confidence in Europe : United in diversity," Other publications TiSEM ea8c3268-2c0b-4fcc-9d4a-6, Tilburg University, School of Economics and Management.
- Yogo, Motohiro, 2008. "Measuring business cycles: A wavelet analysis of economic time series," Economics Letters, Elsevier, vol. 100(2), pages 208-212, August.
- Jason Bram & Sydney Ludvigson, 1998.
"Does consumer confidence forecast household expenditure? a sentiment index horse race,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Jun, pages 59-78.
- Jason Bram & Sydney Ludvigson, 1997. "Does consumer confidence forecast household expenditure?: A sentiment index horse race," Research Paper 9708, Federal Reserve Bank of New York.
- Oller, Lars-Erik & Tallbom, Christer, 1996. "Smooth and timely business cycle indicators for noisy Swedish data," International Journal of Forecasting, Elsevier, vol. 12(3), pages 389-402, September.
- Garcia-Ferrer, Antonio & Bujosa-Brun, Marcos, 2000. "Forecasting OECD industrial turning points using unobserved components models with business survey data," International Journal of Forecasting, Elsevier, vol. 16(2), pages 207-227.
- Miquel Clar & Juan-Carlos Duque & Rosina Moreno, 2007. "Forecasting business and consumer surveys indicators-a time-series models competition," Applied Economics, Taylor & Francis Journals, vol. 39(20), pages 2565-2580.
- Easaw, Joshy Z. & Garratt, Dean & Heravi, Saeed M., 2005. "Does consumer sentiment accurately forecast UK household consumption? Are there any comparisons to be made with the US?," Journal of Macroeconomics, Elsevier, vol. 27(3), pages 517-532, September.
- Garner, C. Alan, 1981. "Economic determinants of consumer sentiment," Journal of Business Research, Elsevier, vol. 9(2), pages 205-220, June.
- Patrick M. Crowley, 2007. "A Guide To Wavelets For Economists ," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 207-267, 04.
When requesting a correction, please mention this item's handle: RePEc:cyb:wpaper:2010-9. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria Nicolaidou)
If references are entirely missing, you can add them using this form.