A new unemployment indicator based on the consensus among consumers’ expectations

What is it about?

In this study we present a novel approach to measure the level of consensus among agents’ expectations. The proposed framework allows us to design a positional indicator that gives the percentage of agreement between survey expectations. In order to assess the performance of the proposed measure of consensus, we compare its ability to track the evolution of the unemployment rate to that of the balance in eight European countries. We find that the consensus-based unemployment indicator outperforms the balance in all countries except Denmark and Sweden, which suggests that the level of agreement among agents’ expectations is a good predictor of unemployment.

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Photo by Hannah Busing on Unsplash

Photo by Hannah Busing on Unsplash

Why is it important?

While other aggregation methods such as the balance, which is constructed as the difference between the percentages of respondents giving positive and negative replies, explicitly omit the neutral information, the proposed metric allows synthesizing the information coming from all response categories, including the percentage of respondents who do not expect any change. The proposed consensus-based indicator is directly interpretable as it gives the percentage of agreement among consumers' expectations. We find that the consensus-based unemployment indicator provides valuable information for purposes of short-term forecasting of the unemployment rate.

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