Author: Yoonsuk Son(Bank of Korea), Heejoon Han(Sungkyunkwan Univ.)

This paper quantitatively measures the gap between perceived economic conditions and real economic activity in Korea, and analyzes the characteristics, usefulness, and related economic variables of this gap indicator. To this end, we extract a common sentiment factor shared by economic agents from major economic sentiment indices and construct a perceived-real economy gap indicator by controlling for the influence of key macroeconomic indicators. Using data from the first quarter of 2003 to the first quarter of 2025, the results show that the estimated gap indicator exhibits strong leading properties for private consumption growth. A positive shock to the indicator significantly increases the growth rate of private consumption for one to three quarters. Furthermore, the perceived–real economy gap is found to be significantly related to the gap between perceived inflation and consumer price inflation, jobless growth, household credit risk, and economic policy uncertainty.