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The confidence channel for the transmission of shocks

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  • Fei, S.
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    Abstract

    It is widely known that agents confidence is closely linked to macroeconomic cycles. A confidence channel may therefore have a significant impact in accelerating and amplifying the transmission of shocks accross borders. We endeavor to find empirical proof of the existence of a confidence channel between G7 countries (and Spain). This paper centers around the concept of a contagion of confidence from “large countries” to “small countries”. I apply instrumental-variable regressions to OECD standardized Consumers and Business Confidence measures, in order to investigate the relationship between the confidence series of all G7 countries, and Spain. Macroeconomic variables are included in these regressions to control for domestic causes of confidence changes. We find that, even after having controlled for domestic macroeconomic causes of confidence level variations, the level of confidence of agents in large countries does have an influence on the level of confidence of agents in smaller countries.

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    Bibliographic Info

    Paper provided by Banque de France in its series Working papers with number 314.

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    Length: 33 pages
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:bfr:banfra:314

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    Keywords: confidence channel; contagion; confidence shock.;

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    1. Robert B. Barsky & Eric R. Sims, 2009. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," NBER Working Papers 15049, National Bureau of Economic Research, Inc.
    2. Jaimovich, Nir & Rebelo, Sérgio, 2006. "Can News About the Future Drive the Business Cycle?," CEPR Discussion Papers 5877, C.E.P.R. Discussion Papers.
    3. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," IDEI Working Papers 158, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. Martial Dupaigne & Franck Portier & Paul Beaudry, 2007. "The International Propagation of News Shocks," 2007 Meeting Papers 251, Society for Economic Dynamics.
    5. Robert Anderton & Filippo di Mauro & Fabio Moneta, 2004. "Understanding the impact of the external dimension on the euro area - trade, capital flows and other international macroeconomic linkages," Occasional Paper Series 12, European Central Bank.
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