Confidence spillovers in the euro area

In recent years, there has been close co-movement between consumer confidence and private consumption in the euro area. During the crisis, in particular, consumer confidence was identified by many commentators as a driving factor in its persistence as expectations about a sustainable path of economic growth were adjusted significantly. In view of the unprecedented extent of the crisis, the question of whether and to what extent changes in consumer confidence in one country could spill over to other countries was also raised. This section discusses the relationship between consumer confidence and consumption, and reviews the evidence of consumer confidence spillovers between euro area countries. We conclude that there is some evidence to suggest that confidence shocks are transmitted between countries. This conclusion is corroborated by results from the estimation of a Global Vector Autoregressive (GVAR) model for a number of euro area countries.