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Replacing Judgment by Statistics: Constructing Consumer Confidence Indicators on the basis of Data-driven Techniques. The Case of the Euro Area

Christian Gayer (), Alessandro Girardi () and Andreas Reuter ()
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Christian Gayer: European Commission, DG-ECFIN
Andreas Reuter: European Commission, DG-ECFIN

No 16125, Working Papers LuissLab from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This article compares the properties of the European Commission (EC) Consumer Confidence Indicator (CCI) for the euro area with three alternative indices which differ from the former in that they (i) consider a richer set of survey questions and (ii) are the result of data-driven statistical techniques, rather than the simple arithmetic mean of the input series. The alternative indicators are shown to fail to produce significantly better forecasts of expansions and contractions in private consumption, once information from relevant, timely available hard data is controlled for. The conclusions change, however, if the analysis is re-conducted on well-defined subsets of survey questions. Concretely, the application of the alternative construction techniques to a data set which is limited to questions about consumers' personal finances produces an indicator which, combined with relevant macro-economic time series, yields significant improvements in forecasting expansions and contractions in private consumption.

Keywords: consumer surveys; composite indicators; euro area; principal components analysis; partial least squares; ridge regression; macroeconomic forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2016
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