The role of confidence shocks in business cycles and their global dimension
DEES, Stephane
Laboratoire d'analyse et de recherche en économie et finance internationales [Larefi]
Laboratoire d'analyse et de recherche en économie et finance internationales [Larefi]
DEES, Stephane
Laboratoire d'analyse et de recherche en économie et finance internationales [Larefi]
< Leer menos
Laboratoire d'analyse et de recherche en économie et finance internationales [Larefi]
Idioma
EN
Article de revue
Este ítem está publicado en
International Economics. 2017-10-01, vol. 151, p. 48-65
Resumen en inglés
This paper uses survey data on consumer sentiment to identify the causal effects of confidence shocks on real economic activity in a selection of advanced economies. Starting from a set of closed-economy VAR models, we ...Leer más >
This paper uses survey data on consumer sentiment to identify the causal effects of confidence shocks on real economic activity in a selection of advanced economies. Starting from a set of closed-economy VAR models, we show that these shocks have a significant and persistent impact on domestic consumption and real GDP. In line with the existing literature, we find that confidence shocks explain a large share of the forecast error variance of real economic activity. At the same time, the shocks we identify are significantly correlated across countries. In order to account for common global components in international confidence cycles, we extend the analysis to a FAVAR model. This approach proves effective in removing the correlation in country-specific confidence shocks and in isolating mutually orthogonal idiosyncratic components. As a result, the (domestic and cross-border) effects of country-specific confidence shocks are attenuated and the forecast error variance contributions are reduced. Overall, our findings suggest that, while confidence shocks play an important role in domestic business cycle fluctuations, they contain a strong common component, which confirms their global dimension.< Leer menos
Palabras clave en inglés
Consumer confidence
Consumption
International Linkages
Vector Autoregression (VAR)
Factor-Augmented VAR (FAVAR)
Centros de investigación