Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach

Thomas Lux () and Jaba Ghonghadze ()
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Thomas Lux: Department of Economics - CAU - Christian-Albrechts-Universität zu Kiel = Christian-Albrechts University of Kiel = Université Christian-Albrechts de Kiel, Kiel Institute for the World Economy - Kiel Institute for the World Economy
Jaba Ghonghadze: Department of Economics - CAU - Christian-Albrechts-Universität zu Kiel = Christian-Albrechts University of Kiel = Université Christian-Albrechts de Kiel

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Abstract: This paper estimates a simple univariate model of expectation or opinion formation in continuous time adapting a 'canonical' stochastic model of collective opinion dynamics (Weidlich and Haag, 1983; Lux, 1995, 2007). This framework is applied to a selected data set of survey-based expectations from the rich EU business and consumer survey database for twelve European countries. The model parameters are estimated through maximum likelihood and numerical solution of the transient probability density functions for the resulting stochastic process. The model's performance is assessed with respect to its out-of-sample forecasting capacity relative to univariate time series models of the ARMA(p,q) and ARFIMA(p,d,q) varieties. These tests speak for a slight superiority of the canonical opinion dynamics model over the alternatives in the majority of cases.

Keywords: Social; Sciences; &; Humanities (search for similar items in EconPapers)
Date: 2011-06-25
Note: View the original document on HAL open archive server: https://hal.science/hal-00711445
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Citations: View citations in EconPapers (4)

Published in Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2011.570716⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00711445

DOI: 10.1080/00036846.2011.570716

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