Modeling the dynamics of EU economic sentiment indicators: an interaction-based approach

Jaba Ghonghadze and Thomas Lux

No 1487, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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 on 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: Expectation formation; survey-based expectations; opinion dynamics; Fokker-Planck equation; forecasting (search for similar items in EconPapers)
JEL-codes: C53 C83 E32 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1487

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