Lebanon Pulse Index Simulation: A Comparative Analysis of Alternative Economic Sentiment Methodologies

Abstract

The Lebanon Pulse Index is the Labor and Equity Lab at the American University of Beirut's measure of consumer confidence and economic sentiment in Lebanon. Ahead of its construction, this paper uses pilot data from 182 respondents to examine established economic-sentiment methodologies for design choices that could inform the index. We benchmark four such methodologies, from the United States, Germany, Japan, and India, against the same seventeen-item question set, examine the underlying structure of the six core and eleven standby items through principal component analysis, and assess how sensitive each methodology's composite score is to the addition of individual standby items. The core six items behave as a single, coherent construct, supporting simple equal-weighted averaging. Within that construct, the three present-oriented and three future-oriented items separate cleanly into two related but distinct components, providing empirical support for building the Lebanon Pulse Index as separate present and future sub-indices rather than one undifferentiated score. The sensitivity analysis further shows that progressive-weighting methodology, which retains the intensity of a response rather than collapsing it into a binary positive or negative category, is more responsive to the concentration of extreme responses present in the pilot data. We recommend that the production Lebanon Pulse Index draw on progressive weighting, combined with a present and future sub-index structure grounded in the six core items, rather than adopting any single benchmarked methodology wholesale.