The confidence channel for the transmission of shocks
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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- Nir Jaimovich & Sergio Rebelo, 2006.
"Can News About the Future Drive the Business Cycle?,"
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31, Society for Economic Dynamics.
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NBER Working Papers
15049, National Bureau of Economic Research, Inc.
- Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-77, June.
- Martial Dupaigne & Franck Portier & Paul Beaudry, 2007. "The International Propagation of News Shocks," 2007 Meeting Papers 251, Society for Economic Dynamics.
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