The role of confidence in the evolution of the Spanish economy: empirical evidence from an ARDL model

Article Sidebar

PDF
Published: Dec 30, 2014

Main Article Content

Pablo Castellanos García
Universidade da Coruña
Spain
Indalecio Pérez Díaz del Río
Universidade da Coruña
Spain
Jose Manuel Sanchez-Santos
Universidade da Coruña
Spain
Vol. 3 No. 2 (2014), Articles, pages 148-161
DOI: https://doi.org/10.17979/ejge.2014.3.2.4303
Submitted: Sep 24, 2018 Published: Dec 30, 2014
How to Cite

Abstract

The aim of this paper is to verify the existence and to determine the nature of long-term relationships between economic agents’ confidence, measured by the Economic Sentiment Index (ESI), with some of the "fundamentals" of the Spanish economy. In particular, by modeling this type of relations, we try to determine whether confidence is a dependent (explained) or independent (explanatory) variable. Along with confidence, in our model we incorporate variables such as risk premium of sovereign debt, financial market volatility, unemployment, inflation, public and private debt and the net lending/net borrowing of the economy. For the purpose of obtaining some empirical evidence on the exogenous or endogenous character of the above mentioned variables an ARDL (Autoregressive-Distributed Lag) model is formulated. The model is estimated with quarterly data of the Spanish economy for the period 1990-2012. Our findings suggest that: (a) unemployment is the dependent variable, (b) there is an inverse relationship between ESI in Spain and unemployment; and (c) the Granger causality goes from confidence to unemployment.

Keywords:

confidence, economic sentiment, ARDL models

Downloads

Download data is not yet available.

Article Details

Crossref
Scopus
Google Scholar
Europe PMC

References

Arif, Salman and Charles M.C. Lee (2014) `Aggregate Investment and Investor Sentiment´, The Review of Financial Studies 27(11): 3241-3279.

Bloom, Nicholas (2009) ‘The Impact of Uncertainty Shocks’, Econometrica 77(3): 623–68.

Carroll, Christopher D., Jeffrey C Fuhrer and David W. Wilcox, (1994) `Does Consumer Sentiment Forecast Household Spending? If So, Why?´ American Economic Review 84 (5): 1397-1408.

Chicago Board Options Exchange (2014) Introduction to VIX Options and Futures, URL (consulted Nov. 2014): http://www.cboe.com/micro/VIX/vixintro.aspx.

Claveria, Oscar, Ernest Pons and Raúl Ramos (2007) `Business and consumer expectations and macroeconomic forecasts´, International Journal of Forecasting 23(1): 47-69.

Dominitz, Jeff and Charles F. Manski (2004) ‘How should we measure consumer confidence?’, Journal of Economic Perspectives 18(2): 51-66.

Easaw, Joshy Z., Dean Garratt and Saeed M. Heravi, (2005) `Does consumer sentiment accurately forecast UK household consumption? Are there any comparisons to be made with the US?´, Journal Macroeconomics 27(3): 517-532.

European Commision (2004) `The Joint Harmonised EU Programme of Business and Consumer Surveys. User Guide´. Directorate-General for Economic and financial affairs, Brussels, URL (consulted Nov.2014): http://ec.europa.eu/economy_finance/db_indicators/surveys/documents/bcs_user_guide_en.pdf.

European Council (2009) Council Regulation (EC) No 479/2009, Official Journal of the European Union, URL (consulted Nov. 2014): http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/Annexes/ei_naga_a_esms_an2.pdf

Ferreira, Eva, Maria I. Martínez, Eliseo Navarro and Gonzalo Rubio (2008) `Economic Sentiment and Yield Spreads in Europe´, European Financial Management 14(2): 206-221.

Fuhrer, Jeffrey C. (1993) `What Role Does Consumer Sentiment Play in the U.S. Economy?´ Federal Reserve Bank of Boston New England Economic Review, January-February: 32-44.

Ghonghadze, Jaba and Thomas Lux (2012) `Modelling the dynamics of EU economic sentiment indicators: an interaction-based approach´, Applied Economics 44(24): 205-3088.

Golinelli, Roberto and Giuseppe Parigi (2004) `Consumer Sentiment and Economic Activity. A Cross Country Comparison´, Journal of Business Cycle Measurement and Analysis 10(2): 147-170.

Granger, Clive.W.J. (1969) `Investigating causal relationships by econometric models and cross spectral methods´, Econometrica 37(3): 425-435.

Hendry David F. and Neil R. Ericsson (1991) `Modeling the Demand for Narrow Money in the United Kingdom and the United States´, European Economic Review 35(4): 833-866.

Jansen, Jos W. and Niek J. Nahuis. (2003) `The stock market and consumer confidence: European evidence´, Economics Letters 79(1): 89-98.

Katona, George (1951) Psychological analysis of economic behavior. New York: McGraw-Hill (reprinted 1977).

Katona, George (1975) Psychological economics. Amsterdam: Elsevier.

Kurov, Alexander (2010) `Investor sentiment and the stock market’s reaction to monetary policy´, Journal of Banking & Finance 24(1): 139-149.

Lee, Wayne Y., Christine X. Jiang and Daniel C. Indro (2002) `Stock market volatility, excess returns, and the role of investor sentiment´, Journal of Banking & Finance 26(12): 2277-2299.

Ludvigson, Sydney C. (2004) `Consumer Confidence and Consumer Spending´, The Journal of Economic Perspectives, 18(2): 29-50.

Matsusaka, John G. and Argia M. Sbordone (1995) `Consumer Confidence and Economic Fluctuations´ Economic Inquiry 33 (2): 296-318.

Mishkin, Frederic S. (1978) `Consumer Sentiment and Spending on Durable Goods´, Brookings Papers on Economic Activity 1: 217-232.

Narayan, P.K. (2005) `The saving and investment nexus for China: evidence from cointegration tests´, Applied Economics 37(17): 1979-1990.

Otoo, María (1999) `Consumer sentiment and the stock market´, Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series 60.

Perez, Indalecio, Pablo Castellanos and José M. Sanchez-Santos (2013) `Risk premium as an economic policy objective: the Spanish case´, Economics and Business Letters, 2(3): 94-104.

Pesaran, M. Hashem and Bijan Pesaran (1997) Working with Microfit 4.0: Interactive Econometric Analysis. Oxford University Press.

Pesaran, M. Hashem, Yongcheol Shin and Richard.J. Smith (2001) `Bounds testing approaches to the analysis of level relationships´, Journal of Applied Economics 16(3): 289-326.

Sultan, Riad (2010) `Short-run and long-run elasticities of gasoline demand in Mauritius: an ARDL bounds test approach´, Journal of Emerging Trends in Economics and Managements Sciences 2(1): 90-95.

Taylor, Karl and Robert McNabb (2007) `Business cycles and the role of confidence: evidence for Europe´, Oxford Bulletin of Economics and Statistics 69(2): 185–208.

Toda, Hiro Y. and Taku Yamamoto (1995) ‘Statistical inference in vector autoregressions with possibly integrated processes’, Journal of Econometrics 66(1-2): 225-250.

Verma, Rahul and GökÇe Soydemir (2009) `The impact of individual and institutional investor sentiment on the market price of risk´, The Quarterly Review of Economics and Finance 49(3): 1129-1145.

Vuchelen, Jef (1995) `Political events and consumer confidence in Belgium´, Journal of Economic Psychology 16(4): 563-579.