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How is Confidence Related to Unemployment in Europe? A fuzzy logic answer

  • António Caleiro

    ()

    (Department of Economics, University of Évora)

Notwithstanding the numerous applications of fuzzy logic in several fields of economics, it is surprising that, to the best of our knowledge, so very few applications have been made in modelling approximations of subjective economic variables, such as confidence, satisfaction or even expectations, by objective ones, such as unemployment, output or inflation. This gap in the literature is accompanied by a lack on the availability of data concerning those subjective variables. Given that one of the main concerns of fuzzy logic is to capture approximate rather than exact forms of reasoning, and this also characterises many economic situations, such as in fact forming intrinsically subjective measures of confidence, this logic can and should indeed be used to understand how some of those subjective measures can be approximated by objective ones. This task is accomplished in the paper by the use of data on consumer confidence and on the unemployment rate for the pre-enlargement fifteen European Union member states. The results indicate the clear importance of unemployment on confidence, which is a result that should be taken into account when analysing policy-making that, from a naïve and/or easy viewpoint, considers confidence as a relevant variable but ignores unemployment.

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File URL: http://hdl.handle.net/10174/8417
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Paper provided by University of Évora, Department of Economics (Portugal) in its series Economics Working Papers with number 1_2005.

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Length: 14 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:evo:wpecon:1_2005
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  1. Carlo Bagnoli & Halbert C. Smith, 1998. "The Theory of Fuzzy Logic and its Application to Real Estate Valuation," Journal of Real Estate Research, American Real Estate Society, vol. 16(2), pages 169-200.
  2. James E. West & Bruce Linster, 2003. "The Evolution of Fuzzy Rules as Strategies in Two-Player Games," Southern Economic Journal, Southern Economic Association, vol. 69(3), pages 705-717, January.
  3. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695, December.
  4. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  5. Robert Draeseke & David E. A. Giles, 1999. "A Fuzzy Logic Approach to Modelling the Underground Economy," Econometrics Working Papers 9909, Department of Economics, University of Victoria.
  6. S. S. L. Chang & H. O. Stekler, 1977. "Fuzziness in Economic Systems, Its Modeling and Control," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 2, pages 165-174 National Bureau of Economic Research, Inc.
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