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Business Cycles and the Role of Confidence: Evidence from Europe

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  • Bob McNabb
  • Karl Taylor

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Abstract

Using an under-utilised dataset on consumer and business confidence indicators across the UK, France, Italy and the Netherlands, this paper considers the extent to which such indicators are linked to GDP and the business cycle. We adopt, cross correlation descriptive statistics, Granger causality tests, variance decomposition, and forecast probit tests to investigate the properties of the data. In general consumer and business confidence indicators are leading indicators and pro-cyclical. There is some evidence of causality between the indicators and GDP and confidence indicators would appear to have good predictive power of cycle turning points in relation to other leading indicators.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 02/3.

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Date of creation: Feb 2002
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Handle: RePEc:lec:leecon:02/3

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References

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Citations

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Cited by:
  1. Thomas Lux, 2008. "Rational Forecasts or Social Opinion Dynamics? Identification of Interaction Effects in a Business Climate Survey," Kiel Working Papers 1424, Kiel Institute for the World Economy.
  2. Gomes, Orlando, 2007. "On the stability of endogenous growth models: an evaluation of the agents’ response to output fluctuations," MPRA Paper 2891, University Library of Munich, Germany.
  3. Mark Holmes & Brian Silverstone, 2010. "Business confidence and cyclical turning points: a Markov-switching approach," Applied Economics Letters, Taylor and Francis Journals, vol. 17(3), pages 229-233.
  4. Nicoletta Pashourtidou & Andreas Tsiaklis, 2011. "An Analysis of Firms’ Expectations about Activity and Employment," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 5(1), pages 71-85, June.
  5. Jaba Ghonghadze & Thomas Lux, 2009. "Modeling the Dynamics of EU Economic Sentiment Indicators: An Interaction-Based Approach," Kiel Working Papers 1487, Kiel Institute for the World Economy.
  6. Orlando Gomes, 2010. "Consumer confidence, endogenous growth and endogenous cycles," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 377-404, September.

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