Can Confidence Indicators Be Useful to Predict Short Term Real GDP Growth?
49 Pages Posted: 20 Jan 2003
Date Written: March 2002
Abstract
We investigate the usefulness of the European Commission confidence indicators in forecasting real GDP growth rates in the short-run in selected euro areas countries (Belgium, Spain, Germany, France, Italy and the Netherlands) which account for almost 90% of the euro area. We estimate a linear relationship between real GDP and confidence indicators and we compare the forecasting performance of the estimated models with a benchmark ARIMA model. We generally find that confidence indicators can be useful in forecasting real GDP growth rates in the short run in a number of countries (Belgium, Germany, France, Italy and the Netherlands). Notwithstanding some signs of instability in the relation between confidence indicators and real GDP, improvements with the use of time-varying parameter models appear to be fairly limited but confirm the findings obtained with constant parameter techniques. The results obtained are robust to a wide range of variant tests implemented.
Keywords: Forecasting Real GDP, Confidence Indicators, Kalman Filter
JEL Classification: C22, E27
Suggested Citation: Suggested Citation
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