Since 1997 the Lithuanian Free Market Institute (LFMI) has conducted research into the Lithuanian economy based on a survey of market participants. This launch of this project was prompted by the need of alternative sources of economic estimates.

 

 

The main goals of the LFMI survey are to provide estimates and forecasts of economic variables based on the opinion of market participants, to identify factors that may have influenced these estimates and expectations, to compare the survey results with official statistics and data from other sources, and to offer interpretations of major differences.

 

 

LFMI's survey is based on the expert consensus paradigm. This paradigm is derived from the theory of rational expectations, originated with J.F. Muth in 1961 and later elaborated by R. Lucas and other economists. The theory states that market participants use all available information to make estimates and forecasts. It is the expectations of market participants that determine their actions and the direction of economic development. The more information market participants possess, the more credible their estimates and forecasts are. It is likely that individuals who are engaged in day-to-day business activities have the most information about economic indicators, while their successful performance reflects their ability to process economic information.

 

We do not aim to defy official statistics but to present alternative estimates based on a different approach. The LFMI survey methodology differs from the methodology used by official statisticians in three main respects. First, LFMI survey participants present economic information they have themselves generalised, whereas the Lithuanian Department of Statistics collects unique information from the business sector and generalises it by statistical methods. Second, the LFMI survey depends on benevolent participation of economic experts in assessing market processes, while the Department of Statistics collects detailed mandatory reports from enterprises (households can refuse to participate in official surveys). Third, LFMI has chosen economic indicators and definitions thereof which can be useful in making business decisions. The Department of Statistics uses an approved methodology to investigate an established set of variables. In addition to that, LFMI presents comprehensive information promptly and conveniently. These differences make us believe that the results of the surveys have a practical value for market participants.

 

 

LFMI survey respondents are individuals who deal with, and analyse, market information on a daily basis. Engagement in activities that involve an extensive use of information supplied by the market, competence and successful professional performance are the main criteria in selecting respondents. Thus our survey experts include leading CEOs, managers, financiers and analysts.

 

 

The indicators under analysis are divided into four categories, including a total of 21 variables: (i) macroeconomics, including growth of gross domestic product (GDP), the share of shadow economy in GDP, import and export growth, changes of consumer and producer prices, the exchange rate of the litas to the US dollar, the tax burden, and unemployment; (ii) household indicators, including personal earnings, household income, investments and savings; (iii) corporate indicators, including the profit margin, return on equity, reinvested profits and share of expenditures on market research and innovation; and (iv) the price of money, including the costs of borrowing, yield on government securities and the share of non-bank lending.

 

The survey is conducted twice a year. Survey respondents are asked to present their estimates for the past year and one-year forecasts based on their own opinion, experience and observations. The estimates and forecasts are expected to reflect the country’s general economic situation and trends. They are not supposed to focus on a specific company, region or a branch of the economy.

 

 

The results of the survey are presented in publications and on CD.