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Can confidence indicators be useful to predict short term real GDP growth?

  • Mourougane, Annabelle
  • Roma, Moreno

We investigate the usefulness of the European Commission confidence indicators in forecasting real GDP growth rates in the short-run in selected euro area countries (Belgium, Spain, Germany, France, Italy and the Netherlands) which account for almost 90% of the euro area. We estimate a linear relationship between real GDP and confidence indicators and we compare the forecasting performance of the estimated models with a benchmark ARIMA model. We generally find that confidence indicators can be useful in forecasting real GDP growth rates in the short run in a number of countries (Belgium, Germany, France, Italy and the Netherlands). Notwithstanding some signs of instability in the relationship between confidence indicators and real GDP, improvements with the use of time-varying parameter models appear to be fairly limited but confirm the findings obtained with constant parameter techniques. The results are robust to a wide range of variant tests implemented. JEL Classification: C22, E27

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Paper provided by European Central Bank in its series Working Paper Series with number 0133.

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Date of creation: Mar 2002
Date of revision:
Handle: RePEc:ecb:ecbwps:20020133
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  1. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," The Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January.
  2. repec:cup:cbooks:9780521634809 is not listed on IDEAS
  3. repec:cup:cbooks:9780521632423 is not listed on IDEAS
  4. Rebecca A Emerson & David Hendry, 1994. "An evaluation of forecasting using leading indicators," Economics Papers 5., Economics Group, Nuffield College, University of Oxford.
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