WHAT DO BUSINESS SENTIMENTS SIGNAL: GROWTH OR NOTHING?

Abstract

Business sentiment surveys are conducted to provide information on the economic agents’ perceptions of the current situation and future expectations, hence the economic growth. Therefore, this paper aims to test whether there is a long term relationship between the business sentiment index and growth in the selected countries over 1985-2009. Besides, the survey questions are decomposed according to their forward-looking and backward-looking characteristics in order to compute “current conditions” and “expectations” sub-indices. ARDL model results indicate that business sentiment indices have a long term relationship with the growth in most of the countries. Nevertheless, there is not a significant difference between “current conditions” and “expectations” sub-indices.

Keywords

• Business tendency surveys, business sentiment, growth, ARDL

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