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arXiv · 1508.02846

The predictive power of the business and bank sentiment of firms: A high-dimensional Granger Causality approach

Ines Wilms·Sarah Gelper·Christophe Croux
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Abstract

We study the predictive power of industry-specific economic sentiment indicators for future macro-economic developments. In addition to the sentiment of firms towards their own business situation, we study their sentiment with respect to the banking sector - their main credit providers. The use of industry-specific sentiment indicators results in a high-dimensional forecasting problem. To identify the most predictive industries, we present a bootstrap Granger Causality test based on the Adaptive Lasso. This test is more powerful than the standard Wald test in such high-dimensional settings. Forecast accuracy is improved by using only the most predictive industries rather than all industries.

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Ines Wilms, Sarah Gelper, Christophe Croux. 2015-08-12. The predictive power of the business and bank sentiment of firms: A high-dimensional Granger Causality approach. https://arxiv.org/abs/1508.02846

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