Redefining the Croatian Economic Sentiment Indicator
Based on Business and Consumer Survey (BCS) data,
the European Commission (EC) regularly publishes the monthly
Economic Sentiment Indicator (ESI) for each EU member state. ESI
is conceptualized as a leading indicator, aimed ad tracking the overall
economic activity. In calculating ESI, the EC employs arbitrarily
chosen weights on 15 BCS response balances. This paper raises the
predictive quality of ESI by applying nonlinear programming to find
such weights that maximize the correlation coefficient of ESI and
year-on-year GDP growth. The obtained results show that the highest
weights are assigned to the response balances of industrial sector
questions, followed by questions from the retail trade sector. This
comes as no surprise since the existing literature shows that the
industrial production is a plausible proxy for the overall Croatian
economic activity and since Croatian GDP is largely influenced by
the aggregate personal consumption.
[1] Abeysinghe, T., Lee, C., “Best linear unbiased disaggregation of annual
GDP to quarterly figures: the case of Malaysia”, Journal of Forecasting,
17(7), 1998, pp. 527-537.
[2] Abeysinghe, T., Rajaguru, G., “Quarterly real GDP estimates for China
and ASEAN4 with a forecast evaluation”, Journal of Forecasting, 23(6),
2004, pp. 431-447.
[3] Bagzibagli, K., “Monetary transmission mechanism and time variation
in the euro area”, Empirical Economics, 47(3), 2014, pp. 781-823.
[4] Cerovac, S., “Novi kompozitni indikatori za hrvatsko gospodarstvo:
prilog razvoju sustava cikličkih indikatora”, Istraživanja I-16, Croatian
National Bank, 2005.
[5] Chow, G.C., Lin, A.I., “Best Linear Unbiased Interpolation, Distribution
and Extrapolation of Time Series by Related Series”, Review of
Economics and Statistics, 53(4), 1971, pp. 372-375.
[6] Čižmešija, M. & Sorić, P., “Assessing Croatian GDP Components via
Economic Sentiment Indicator”, Ekonomska istraživanja, 23(4), 2010,
pp. 1-10.
[7] European Commission, “The Joint Harmonised EU Programme of
Business and Consumer Surveys – User Guide”, 2014,
http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/
bcs_user_guide_en.pdf, Accessed: 12 February, 2015.
[8] Gayer, C., “Forecast Evaluation of European Commission Survey
Indicators”, Journal of Business Cycle Measurement and Analysis, 2,
2005, pp. 157-183.
[9] Gelper, S. and Croux, C., “On the construction of the European
Economic Sentiment Indicator”, Oxford Bulletin of Economics and
Statistics, 72(1), 2010, pp. 47-62.
[10] OECD, Business Tendency Surveys - A Handbook, 2003,
http://www.oecd.org/std/leading-indicators/31837055.pdf, Accessed: 12
February, 2015.
[11] Silgoner, M.A., “An Overview of European Economic Indicators”,
Proceedings of the 28th CIRET Conference, Rome, September 2006.
[12] Sorić, P., Marković, M., “Predicting Downturn: Are Tendency Surveys
A Good Estimator of Retail Activity in Croatia”, Ekonomski Pregled,
61(9-10), 2010, pp. 559-575.
[13] Sorić, P., Škrabić, B. & Čižmešija, M., “European Integration in the
Light of Business and Consumer Surveys”, Eastern European
Economics, 51(2), 2013, pp. 5-21.
[14] Tica, J., “The Macroeconomic Aspects of the Croatian Housing
Market”, Ekonomski Pregled, 55 (7-8), 2004, pp. 641-659.
[15] Van Aarle, B. & Kappler, M., “Economic sentiment shocks and
fluctuations in economic activity in the euro area and the USA”,
Intereconomics 47(1), 2012, pp. 44-51.
[1] Abeysinghe, T., Lee, C., “Best linear unbiased disaggregation of annual
GDP to quarterly figures: the case of Malaysia”, Journal of Forecasting,
17(7), 1998, pp. 527-537.
[2] Abeysinghe, T., Rajaguru, G., “Quarterly real GDP estimates for China
and ASEAN4 with a forecast evaluation”, Journal of Forecasting, 23(6),
2004, pp. 431-447.
[3] Bagzibagli, K., “Monetary transmission mechanism and time variation
in the euro area”, Empirical Economics, 47(3), 2014, pp. 781-823.
[4] Cerovac, S., “Novi kompozitni indikatori za hrvatsko gospodarstvo:
prilog razvoju sustava cikličkih indikatora”, Istraživanja I-16, Croatian
National Bank, 2005.
[5] Chow, G.C., Lin, A.I., “Best Linear Unbiased Interpolation, Distribution
and Extrapolation of Time Series by Related Series”, Review of
Economics and Statistics, 53(4), 1971, pp. 372-375.
[6] Čižmešija, M. & Sorić, P., “Assessing Croatian GDP Components via
Economic Sentiment Indicator”, Ekonomska istraživanja, 23(4), 2010,
pp. 1-10.
[7] European Commission, “The Joint Harmonised EU Programme of
Business and Consumer Surveys – User Guide”, 2014,
http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/
bcs_user_guide_en.pdf, Accessed: 12 February, 2015.
[8] Gayer, C., “Forecast Evaluation of European Commission Survey
Indicators”, Journal of Business Cycle Measurement and Analysis, 2,
2005, pp. 157-183.
[9] Gelper, S. and Croux, C., “On the construction of the European
Economic Sentiment Indicator”, Oxford Bulletin of Economics and
Statistics, 72(1), 2010, pp. 47-62.
[10] OECD, Business Tendency Surveys - A Handbook, 2003,
http://www.oecd.org/std/leading-indicators/31837055.pdf, Accessed: 12
February, 2015.
[11] Silgoner, M.A., “An Overview of European Economic Indicators”,
Proceedings of the 28th CIRET Conference, Rome, September 2006.
[12] Sorić, P., Marković, M., “Predicting Downturn: Are Tendency Surveys
A Good Estimator of Retail Activity in Croatia”, Ekonomski Pregled,
61(9-10), 2010, pp. 559-575.
[13] Sorić, P., Škrabić, B. & Čižmešija, M., “European Integration in the
Light of Business and Consumer Surveys”, Eastern European
Economics, 51(2), 2013, pp. 5-21.
[14] Tica, J., “The Macroeconomic Aspects of the Croatian Housing
Market”, Ekonomski Pregled, 55 (7-8), 2004, pp. 641-659.
[15] Van Aarle, B. & Kappler, M., “Economic sentiment shocks and
fluctuations in economic activity in the euro area and the USA”,
Intereconomics 47(1), 2012, pp. 44-51.
@article{"International Journal of Business, Human and Social Sciences:70451", author = "I. Lolic and P. Soric and M. Cizmesija", title = "Redefining the Croatian Economic Sentiment Indicator", abstract = "Based on Business and Consumer Survey (BCS) data,
the European Commission (EC) regularly publishes the monthly
Economic Sentiment Indicator (ESI) for each EU member state. ESI
is conceptualized as a leading indicator, aimed ad tracking the overall
economic activity. In calculating ESI, the EC employs arbitrarily
chosen weights on 15 BCS response balances. This paper raises the
predictive quality of ESI by applying nonlinear programming to find
such weights that maximize the correlation coefficient of ESI and
year-on-year GDP growth. The obtained results show that the highest
weights are assigned to the response balances of industrial sector
questions, followed by questions from the retail trade sector. This
comes as no surprise since the existing literature shows that the
industrial production is a plausible proxy for the overall Croatian
economic activity and since Croatian GDP is largely influenced by
the aggregate personal consumption.", keywords = "Business and Consumer Survey, Economic
Sentiment Indicator, Leading Indicator, Nonlinear Optimization with
Constraints.", volume = "9", number = "8", pages = "2729-4", }