Template-Type: ReDIF-Paper 1.0
Author-Name: Julius Stakėnas
Author-X-Name-First: Julius
Author-X-Name-Last: Stakėnas
Author-Email: jstakenas@lb.lt
Author-Workplace-Name: Bank of Lithuania

Title: Forecasting Lithuanian economic activity: The role of confidence indicators
Abstract: The article examines the usefulness of six sector-based confidence indicators in forecasting Lithuanian short-term sectoral economic activity. All six sentiment indicators are examined side-by-side, which allows us to compare their properties, informational content and marginal contribution in forecasting. One of the properties common to all the confidence indices is that the confidence indices’ levels are more related to annual activity changes than to quarterly changes, which motivates us to take into account as well the change in the confidence index level. We find consumer, construction, and economic sentiment indicators to be the most reliable of the six indices, while the manufacturing sentiment index was the least useful in forecasting. We assess the marginal impact of the indicators, employing factor models augmented by additional regressors. Our results also suggest that information on sentiment in one sector is useful in forecasting activity of other sectors as well. The relationship between consumer confidence and private consumption seems to be a somewhat more interesting case than the others, as the level of consumer confidence is statistically significant in regressions when other available economic information is already taken into account. Our interpretation is that the consumer confidence indicator is a proxy of a structural consumption parameter, such as marginal propensity to consume.

Classification-JEL: C33, C53
Keywords: confidence indicators, forecasting, factor models

Length: 28 pages
Number: 3
Note:
Creation-date: 2015-03-30
Price: Free
Publication-Status: 
File-URL: https://www.lb.lt/uploads/publications/docs/op_3.pdf 
File-Format: Application/PDF
File-Function: Full text
Handle: RePEc:lie:opaper: 3