The relationship between changes in the Economic Sentiment Indicator and real GDP growth: a time-varying coefficient approach

Abstract

The aim of this paper is to capture the time-varying effects of the relationship between changes in the Economic Sentiment Indicator (ESI) and economic growth. We use penalized regression splines to estimate the different point effects over time. Evidence from six European countries supports the idea that the elasticity of the ESI is time-varying.Economic Sentiment Indicator; Real GDP Growth; Thin Plate Regression Splines; Time-Varying Coefficient Model