The confidence channel for the transmission of shocks
AbstractIt 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 InfoPaper provided by Banque de France in its series Working papers with number 314.
Length: 33 pages
Date of creation: 2011
Date of revision:
confidence channel; contagion; confidence shock.;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-CBA-2011-01-30 (Central Banking)
- NEP-MAC-2011-01-30 (Macroeconomics)
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