On the leading properties of Business and Consumer Surveys: new evidence from EU countries

Petar Sorić, Blanka Skrabic Peric and Marina Matošec ()
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Marina Matošec: Faculty of Economics and Business, University of Zagreb

No 2101, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb

Abstract: Ever since their initiation 60 years ago, the harmonized European Business and Consumer Surveys (BCS) have risen to the challenge of performing as a solid data pillar for quantifying leading indicators of economic activity. However, mainstream research mainly focuses on publicly available composite BCS confidence indicators and inspects their predictive accuracy. We depart from this stance by considering a battery of novel techniques for quantifying BCS-based leading indicators. We build upon the recently established weighted balance method, forecast disagreement, and surprise index. Additionally, we differ from the standpoint of rational expectations by introducing indicators of irrational sentiment and adaptive expectations, which have not previously been used in BCS studies of this sort. Our analysis in industry, consumer, and retail trade sectors of 28 European economies reveals that most of these novel techniques (especially irrational sentiment and adaptive expectations) produce more accurate predictions of economic activity than standard BCS benchmarks. These results are robust to several panel estimation procedures (heterogeneous panel Granger causality test and panel vector autoregressions, in particular).

Keywords: Business and Consumer Surveys; Heterogeneous panel Granger causality; disagreement; irrational sentiment; adaptive expectations (search for similar items in EconPapers)
JEL-codes: C33 E32 E71 (search for similar items in EconPapers)
Pages: 34
Date: 2021-01-28
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zag:wpaper:2101

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