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A ‘New Modesty’? Level Shifts in Survey Data and the Decreasing Trend of ‘Normal’ Growth


  • Christian Gayer
  • Bertrand Marc


While the current level of the Economic Sentiment Indicator, which is well above its long-term average, is compatible with expanding economic activity, it has been associated with lower growth rates than those implied in the pre-recession period. Departing from the idea that the relationship between qualitative survey (‘soft’) and quantitative (‘hard’) data might have changed during the Great Recession due to a 'new modesty' of survey respondents, this paper goes one step further and examines to what extent this link might be constantly moving over longer time periods. Using rolling regressions and time-varying parameter models for the euro area, the paper shows that the growth rates typically implied by given survey results did not only fall during the Great recession, but already decreased rather systematically for close to 20 years before the crisis, i.e. since around 1990. This is true for the overall economy (measured by GDP growth), but also industrial production, construction production, and households consumption. Country-specific results for the GDP of the four largest euro-area economies are also presented. Furthermore, the paper suggests that business and consumer survey results can be used, beyond their usual short-term forecasting purposes, to gauge changes in long-term or potential growth. While the results should be interpreted as preliminary and experimental, they might be useful as a contribution to the assessment of post-crisis potential growth, not least since they are less subject to revisions than conventional methods based on production functions

Suggested Citation

  • Christian Gayer & Bertrand Marc, 2018. "A ‘New Modesty’? Level Shifts in Survey Data and the Decreasing Trend of ‘Normal’ Growth," European Economy - Discussion Papers 083, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:dispap:083

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    References listed on IDEAS

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    Cited by:

    1. Aguilar, Pablo & Ghirelli, Corinna & Pacce, Matías & Urtasun, Alberto, 2021. "Can news help measure economic sentiment? An application in COVID-19 times," Economics Letters, Elsevier, vol. 199(C).
    2. Werner Roeger & Kieran Mc Morrow & Atanas Hristov & Valerie Vandermeulen, 2019. "Output Gaps and Cyclical Indicator," European Economy - Discussion Papers 104, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Frohm, Erik, 2020. "Labor shortages and wage growth," Working Paper Series 394, Sveriges Riksbank (Central Bank of Sweden).
    4. Pönkä, Harri & Sariola, Mikko, 2021. "Output gaps and cyclical indicators: Finnish evidence," BoF Economics Review 6/2021, Bank of Finland.
    5. Dennis Kant & Andreas Pick & Jasper de Winter, 2022. "Nowcasting GDP using machine learning methods," Working Papers 754, DNB.
    6. Petar Sorić, 2020. "“Normal†growth of the Chinese economy: new metrics based on consumer confidence data," Economics Bulletin, AccessEcon, vol. 40(2), pages 1740-1746.
    7. Petar Sorić & Mirjana Čižmešija & Marina Matošec, 2020. "EU Consumer Confidence and the New Modesty Hypothesis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(3), pages 899-921, December.

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    More about this item

    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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