Confidence and unemployment in the European Union: a lesson from the 2004 enlargement

Abstract

We use data for the monthly unemployment rate and consumer confidence indicator in the European Union to study whether there is a relationship between unemployment and confidence. Our estimation method is based on a fuzzy logic methodology with a Gaussian membership function. We find a stronger relationship between unemployment and confidence than it is apparent. We show in an ex-post prediction study that this relationship did not change, in a significant way, after the 2004 enlargement of the European Union. This fact constitutes a lesson for the post-2007 enlargement period. The link between unemployment and confidence has important policy implications given its relevance, in particular for the (latest call for a new start of the) Lisbon Strategy.