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Title:Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey PDF Logo
Authors:Lux, Thomas
Issue Date:2008
Series/Report no.:Kieler Arbeitspapiere 1424
Abstract:This paper develops a methodology for estimating the parameters of dynamic opinion or expectation formation processes with social interactions. We study a simple stochastic framework of a collective process of opinion formation by a group of agents who face a binary decision problem. The aggregate dynamics of the individuals' decisions can be analyzed via the stochastic process governing the ensemble average of choices. Numerical approximations to the transient density for this ensemble average allow the evaluation of the likelihood function on the base of discrete observations of the social dynamics. This approach can be used to estimate the parameters of the opinion formation process from aggregate data on its average realization. Our application to a well-known business climate index provides strong indication of social interaction as an important element in respondents' assessment of the business climate.
Subjects:Business climate
Business cycle forecasts
Opinion formation
Social interactions
JEL:D84
C42
E37
C42
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Kieler Arbeitspapiere, IfW

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