Construction of an Economic Sentiment Indicator for the Korean Economy

Abstract

Abstract An Economic Sentiment Indicator(ESI) is a composite indicator of business survey indices(BSI) and consumersurvey indices(CSI). The ESI designed to reflect economic agents’ (this includes producers and consumers)overall perceptions of economic activity in a one-dimensional index. The European Commission has pub-lished an ESI since 1985. This paper demonstrates the construction of an ESI for the Korean economy. TheBSI and CSI components (having a high correlation and a leading feature with respect to GDP) are selectedto construct the ESI and they are aggregated using a weighted average and then scaled to have a long-termaverage of 100 and a standard deviation of 10. Thus values greater than 100 indicate an above-averageeconomic sentiment and vice versa. The newly constructed Korean ESI that extends to January 2003 showsa good tracking performance of GDP and adequately reflects the overall perception of economic activity. Keywords: Economic Sentiment Indicator(ESI), business survey index(BSI), consumer survey index(CSI),gross domestic product(GDP).