Are business tendency surveys useful to forecast private investment in Peru? A non-linear approach

We use the results of business tendency surveys (BTS) to forecast private investment growth in Peru, exploring the possible non-linear link between the BTS and private investment for forecasting purposes. We find that business confidence indices extracted from BTS, in particular the one calculated by the Central Reserve Bank of Peru (CRBP), are useful to forecast private investment growth in Peru. Moreover, models constructed only with indices extracted from BTS have a higher predictive power than models including control variables such as lagged GDP growth, inflation or interest rates. We also find that non-linear models are not superior to linear ones in forecasting Peruvian private investment. Additionally, the linear model finally selected would allow us to estimate real private investment growth for the current quarter with a 75-day lead with respect to the official publication date, almost twice the lead associated with the estimation methodology used by practitioners.