Construction of an Economic Sentiment Indicator for the Korean Economy

Moon, Hye-Jung

  • Received : 20110500
  • Accepted : 20110800
  • Published : 2011.10.31


An Economic Sentiment Indicator(ESI) is a composite indicator of business survey indices(BSI) and consumer survey 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 published an ESI since 1985. This paper demonstrates the construction of an ESI for the Korean economy. The BSI and CSI components (having a high correlation and a leading feature with respect to GDP) are selected to construct the ESI and they are aggregated using a weighted average and then scaled to have a long-term average of 100 and a standard deviation of 10. Thus values greater than 100 indicate an above-average economic sentiment and vice versa. The newly constructed Korean ESI that extends to January 2003 shows a good tracking performance of GDP and adequately reflects the overall perception of economic activity.


Economic Sentiment Indicator(ESI);business survey index(BSI);onsumer survey index(CSI);gross domestic product(GDP)


  1. Gayer, C. and Genet, J. (2006). Using factor models to construct composite indicators from BCS data - A comparison with European Commission confidence indicators, European Economy, 240.
  2. Bruno, G. and Malgarini, M. (2002). An Indicator of Economic Sentiment for the Italian Economy, Working Paper No. 28/02, Institute for Studies and Economic Analysis, Rome.
  3. Bry, G. and Boschan, C. (1971). Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, NBER Technical Paper 20.
  4. European Commission (1997). The joint harmonized EU programme of business and consumer surveys, European Economy, 6.
  5. European Commission (2007). The joint harmonized EU programme of business and consumer surveys - users guide.
  6. Gelper, S. and Croux, C. (2007). The Predictive Power of the European Economic Sentiment Indicator, K.U.Leuven, FETEW Research Report KBI 0707, 1-15.
  7. Hodrick, R. and Prescott, E. (1997). Postwar U.S. Business Cycles: An Empirical Investigation, Journal of Money, Credit and Banking, 29, 1-16.
  8. Mazzi, G., Moauro, F. and Savio, G. (2005). Theory and applications of univariate and multivariate models for temporal disaggregation, European Commission, Eurostat, Working papers and studies.
  9. Stock, J. and Watson, M. (2002). Forecasting using principal components from a large number of predictors, The Journal of the American Statistical Association, 97, 1167-1179.

Cited by

  1. Predictability of Consumer Expectations for Future Changes in Real Growth vol.28, pp.3, 2015,
  2. Information Variables for the Predictability of Future Changes in Real Growth vol.26, pp.2, 2013,
  3. A study on the improvement of the economic sentiment index for the Korean economy vol.26, pp.6, 2015,