WHAT DO BUSINESS SENTIMENTS SIGNAL: GROWTH OR NOTHING?

Year 2010, Volume: 2 Issue: 2, 1 - 8, 01.12.2010

Asli Yüksel Mermod Ulkem Basdas

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

References

• Abberger, Klaus (2007) Forecasting quarter-on-quarter changes of German GDP with monthly
• Business Tendency Survey results, Ifo Working Paper, 40. Belke, Ansgar, Joscha Beckmann and Micheal Kühl (2009) Global integration of Central and Eastern European Financial Markets-The Role of Economic Sentiments, Discussion Paper no.952,
• DIW Berlin German Institute for Economic Research, Berlin. Hansson, Jesper, Per Jansson and Marten Löf (2005) Business survey data: do they help in forecasting GDP growth?, International Journal of Forecasting, 21, pp. 377-389.
• Lemmens, Aurelie, Christophe Croux and Martic G. Dekimpe (2005) On the predictive content of production surveys: a pan-European study, International Journal of Forecasting, 21, 2005, pp. 375.
• Lemmens, Aurelie, Christophe Croux and Martic G. Dekimpe (2008) Measuring and testing
• Granger causality over the spectrum: an application to European production expectations surveys, International Journal of Forecasting, 24, pp. 414-431. Mehrotra, Aaron and Jouko Rautava (2007) Do sentiment indicators help to assess and predict actual developments of the Chinese economy?, Bank of Finland Institute for Economies in
• Transition Discussion Papers, 11. Narayan, Paresh Kumar (2005) The saving and investment nexus for China: evidence from cointegration tests, Applied Economics, 37, pp. 1979-1990.
• Pesaran, Mohammad Hasem and Bijan Pesaran (1997) Working with Microfit 4.0, Camfit Data Ltd., Cambridge.
• Pesaran, Mohammad Hasem, Yongcheol Shin and Richard J. Smith (2001) Bounds testing approaches to the analysis of level relationships, Journal of Applied Economics, 16, pp. 289-326.
• Siliverstovs, Boriss (2009) Are business tendency surveys useful for short-term forecasting of
• GDP? Real-time evidence for Switzerland, paper presented in the Spring Meeting of Young Economists, April 23-25, Istanbul, Turkey. Taylor, Karl B. and Robert McNabb (2007) Business Cycles and the Role of Confidence:
• Evidence for Europe, Oxford Bulletin of Economics and Statistics, 69, pp.185-208.