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On the effects of confidence and uncertainty on aggregate demand: evidence from Chile

Author

Listed:
  • Elías Albagli I.
  • Jorge A. Fornero
  • Miguel A. Fuentes D.
  • Roberto Zúñiga V.

Abstract

We study the effects of expectation shocks on aggregate private consumption and investment in Chile. We use microdata from the business climate survey IMCE and the consumer confidence survey IPEC to construct measures of confidence and uncertainty. A simple empirical analysis shows that these measures are useful for predicting activity up to six quarters ahead. Then, using an open-economy SVAR approach, we identify confidence (first moment) and uncertainty (second moment) shocks. After a confidence shock, investment does not react on impact, but exhibits a positive and persistent response in the 12 quarters following the shock. Private consumption shows a positive response on impact and returns to its trend level 8 quarters later. Uncertainty shocks generate a rapid slow-down and bounce-back in investment. Private consumption, instead, shows a weak negative response in the medium term.

Suggested Citation

  • Elías Albagli I. & Jorge A. Fornero & Miguel A. Fuentes D. & Roberto Zúñiga V., 2019. "On the effects of confidence and uncertainty on aggregate demand: evidence from Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(3), pages 008-033, December.
    • Handle: RePEc:chb:bcchec:v:22:y:2019:i:3:p:008-033
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    References listed on IDEAS

    as
    1. Nicolás Chanut & Mario Marcel C. & Carlos A. Medel V., 2019. "Can economic perception surveys improve macroeconomic forecasting in Chile?," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(3), pages 034-097, December.
    2. Rodrigo Cerda & Álvaro Silva & José Tomás Valente, 2018. "Impact of economic uncertainty in a small open economy: the case of Chile," Applied Economics, Taylor & Francis Journals, vol. 50(26), pages 2894-2908, June.
    3. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-249, April.
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    Cited by:

    1. Fernando Faure & Carlos A. Medel, 2020. "Does the Exposure to the Business Cycle Improve Consumer Perceptions for Forecasting? Microdata Evidence from Chile," Working Papers Central Bank of Chile 888, Central Bank of Chile.
    2. Mauricio Alvarado & Gabriel Rodríguez, 2024. "Time-Varying Effects of Financial Uncertainty Shocks on Macroeconomic Fluctuations in Peru," Documentos de Trabajo / Working Papers 2024-531, Departamento de Economía - Pontificia Universidad Católica del Perú.
    3. Jorge Fornero & Andrés Gatty, 2020. "Back testing fan charts of activity and inflation: the Chilean case," Working Papers Central Bank of Chile 881, Central Bank of Chile.

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