Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey
This paper develops a methodology for estimating the parameters of dynamic opinion or expectation formation processes with social interactions. We study a simple stochastic framework of a collective process of opinion formation by a group of agents who face a binary decision problem. The aggregate dynamics of the individuals' decisions can be analyzed via the stochastic process governing the ensemble average of choices. Numerical approximations to the transient density for this ensemble average allow the evaluation of the likelihood function on the base of discrete observations of the social dynamics. This approach can be used to estimate the parameters of the opinion formation process from aggregate data on its average realization. Our application to a well-known business climate index provides strong indication of social interaction as an important element in respondents' assessment of the business climate.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 0431-880 3282
Fax: 0431-880 3150
Web page: http://www.wiso.uni-kiel.de/econ/
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.:
- Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
- Jaba Ghonghadze & Thomas Lux, 2009. "Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach," Kiel Working Papers 1487, Kiel Institute for the World Economy.
- Gelper, S. & Lemmens, A. & Croux, C., 2007. "Consumer Sentiment and Consumer Spending : Decomposing the Granger Causal Relationship in the Time Domain," Other publications TiSEM 55ac7230-2985-41f1-a42c-7, Tilburg University, School of Economics and Management.
- Lux, Thomas, 1997. "Time variation of second moments from a noise trader/infection model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 1-38, November.
- repec:cup:cbooks:9780521637695 is not listed on IDEAS
- Chen, Ping, 2002. "Microfoundations of macroeconomic fluctuations and the laws of probability theory: the principle of large numbers versus rational expectations arbitrage," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 327-344, November.
- Brian Krauth, 2006. "Social interactions in small groups," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 414-433, May.
- George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
- David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988.
"What Moves Stock Prices?,"
487, Massachusetts Institute of Technology (MIT), Department of Economics.
- Stan Hurn & J.Jeisman & K.A. Lindsay, 2006. "Teaching an old dog new tricks: Improved estimation of the parameters of SDEs by numerical solution of the Fokker-Planck equation," Stan Hurn Discussion Papers 2006-01, School of Economics and Finance, Queensland University of Technology.
- Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
- Horst, Ulrich & Scheinkman, Jose A., 2006.
"Equilibria in systems of social interactions,"
Journal of Economic Theory,
Elsevier, vol. 130(1), pages 44-77, September.
- J. Scheinkman & U. Horst, 2003. "Equilibria in Systems of Social Interactions," Princeton Economic Theory Working Papers d5a39039d26e0b08775b915bf, David K. Levine.
- U. Horst & Jose A. Scheinkman, 2010. "Equilibria in Systems of Social Interactions," Levine's Working Paper Archive 506439000000000119, David K. Levine.
- Roland Benabou, 1991.
"Workings of a City: Location, Education, and Production,"
NBER Technical Working Papers
0113, National Bureau of Economic Research, Inc.
- Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
- Sarah Gelper & Aurelie Lemmens & Christophe Croux, 2007. "Consumer sentiment and consumer spending: decomposing the Granger causal relationship in the time domain," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 1-11.
- Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February.
- Shiller, Robert J, 1981.
"Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?,"
American Economic Review,
American Economic Association, vol. 71(3), pages 421-36, June.
- Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
- Karl Taylor & Robert McNabb, 2007.
"Business Cycles and the Role of Confidence: Evidence for Europe,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 69(2), pages 185-208, 04.
- Bob McNabb & Karl Taylor, 2002. "Business Cycles and the Role of Confidence: Evidence from Europe," Discussion Papers in Economics 02/3, Department of Economics, University of Leicester.
- Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995.
"Crime and Social Interactions,"
Harvard Institute of Economic Research Working Papers
1738, Harvard - Institute of Economic Research.
- Alfarano, Simone & Lux, Thomas, 2007.
"A Noise Trader Model As A Generator Of Apparent Financial Power Laws And Long Memory,"
Cambridge University Press, vol. 11(S1), pages 80-101, November.
- Alfarano, Simone & Lux, Thomas, 2005. "A noise trader model as a generator of apparent financial power laws and long memory," Economics Working Papers 2005,13, Christian-Albrechts-University of Kiel, Department of Economics.
- Christopher D. Carroll, 2003.
"Macroeconomic Expectations Of Households And Professional Forecasters,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(1), pages 269-298, February.
- Christopher Carroll, 2003. "RATS code for Macroeconomic Expectations Of Households And Professional Forecasters," QM&RBC Codes 36, Quantitative Macroeconomics & Real Business Cycles.
- Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
- Jones, Andrew M., 1994. "Health, addiction, social interaction and the decision to quit smoking," Journal of Health Economics, Elsevier, vol. 13(1), pages 93-110, March.
- Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
- Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
- Brock, William A & Durlauf, Steven N, 2001.
"Discrete Choice with Social Interactions,"
Review of Economic Studies,
Wiley Blackwell, vol. 68(2), pages 235-60, April.
- Thomas Lux, 2009. "Mass Psychology in Action: Identification of Social Interaction Effects in the German Stock Market," Kiel Working Papers 1514, Kiel Institute for the World Economy.
- Lee, Lung-fei, 2007. "Identification and estimation of econometric models with group interactions, contextual factors and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 333-374, October.
- Horst, Ulrich & Rothe, Christian, 2008. "Queuing, Social Interactions, And The Microstructure Of Financial Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(02), pages 211-233, April.
- Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
- Follmer, Hans, 1974. "Random economies with many interacting agents," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 51-62, March.
When requesting a correction, please mention this item's handle: RePEc:zbw:cauewp:7327. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.