Mixed frequency composite indicators for measuring public sentiment in the EU.

Area of Science:

• Economics
• Econometrics
• Economic Policy

Background:

• Effective short-term economic monitoring is vital for timely policy responses during shocks and crises.
• Current Economic Sentiment Indicator (ESI) in the EU has limitations, including a static, non-country-specific weighting scheme.
• Confidence indicators aid policymakers in assessing policy impacts and economic conditions.

Purpose of the Study:

• To propose a novel approach for constructing composite confidence indicators with dynamic, country-specific weights.
• To enhance the information set used in composite indicators.
• To evaluate the performance of these new indicators in response to COVID-19 containment policies and for economic forecasting.

Main Methods:

• Development of new composite confidence indicator methodologies.
• Analysis of indicator responses to specific policy interventions (COVID-19 containment).
• Experimental forecasting of economic activity using the proposed indicators.

Main Results:

• The proposed composite confidence indicators demonstrate improved responsiveness and potential for better economic forecasting.
• Evaluation of indicator performance against real-world policy responses provides empirical validation.
• The study highlights the advantages of dynamic and country-specific weighting schemes.

Conclusions:

• Novel composite confidence indicators offer a more robust tool for economic monitoring and policy analysis in the EU.
• The developed approach addresses limitations of existing indicators like the ESI.
• These indicators show promise for more accurate short-term economic forecasting and policy evaluation.