Business Cycles and the Role of Confidence: Evidence for Europe*

Karl B. Taylor

139 citations0/0 files storedOxford Bulletin of Economics and Statistics

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Abstract

Abstract This paper examines whether indicators of consumer and business confidence can predict movements in GDP over the business cycle for four European economies. The empirical methodology used to investigate the properties of the data comprises cross‐correlation statistics, implementing an approach developed by den Haan [Journal of Monetary Economics (2000) , Vol. 46, pp. 3–30]. The predictive power of confidence indicators is also examined, investigating whether they can predict discrete events, namely economic downturns, and whether they can quantitatively forecast point estimates of economic activity. The results indicate that both consumer and business confidence indicators are procyclical and generally play a significant role in predicting downturns.

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References

1980Macroeconomics and Reality 1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1997Postwar U.S. Business Cycles: An Empirical Investigation 1994Comparing Predictive Accuracy 1990Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities 1990Lectures on Macroeconomics.1993Detrending, stylized facts and the business cycle 1998Predicting U.S. Recessions: Financial Variables as Leading Indicators

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