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

Author

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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)

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.

Suggested Citation

  • Thomas Lux & Jaba Ghonghadze, 2011. "Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach," Post-Print hal-00711445, HAL.
    • Handle: RePEc:hal:journl:hal-00711445
    DOI: 10.1080/00036846.2011.570716
    Note: View the original document on HAL open archive server: https://hal.science/hal-00711445
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    References listed on IDEAS

    as
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    19. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data: A Critical Assessment," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 645-668, December.
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    22. John A. Cotsomitis & Andy C. C. Kwan, 2006. "Can Consumer Confidence Forecast Household Spending? Evidence from the European COmmission Business and Consumer Surveys," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 597-610, January.
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    24. 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.
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    Cited by:

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    3. Nicolas, Maxime L.D., 2022. "Estimating a model of herding behavior on social networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 604(C).
    4. Sudeshna Ghosh, 2021. "Consumer Confidence and Consumer Spending in Brazil: A Nonlinear Autoregressive Distributed Lag Model Analysis," Arthaniti: Journal of Economic Theory and Practice, , vol. 20(1), pages 53-85, June.

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