What drives consumer confidence in times of financial crises? Evidence for the Netherlands
AbstractFive years after Lehman Brothers defaulted, the Dutch consumer confidence is still very low. Based on a monthly time series analysis from 1978 onwards, we provide evidence that general economic indicators are not sufficient to explain consumer sentiment. We show that during the Great Recession confidence drops are magnified by the decline in the public's trust in the financial sector and in Europe. Next to financial stability, price stability and political stability are found to be crucial for consumer confidence. Furthermore, we identify autonomous waves of optimism and pessimism. We interpret this as evidence of Keynes' notion of animal spirits. Full recovery of consumer confidence might take long.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 394.
Date of creation: Sep 2013
Date of revision:
consumer confidence; trust; animal spirits; financial crisis;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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