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Business Cycles and the Role of Confidence: Evidence for Europe

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  • Karl Taylor
  • Robert McNabb

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.

Suggested Citation

  • Karl Taylor & Robert McNabb, 2007. "Business Cycles and the Role of Confidence: Evidence for Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 185-208, April.
    • Handle: RePEc:bla:obuest:v:69:y:2007:i:2:p:185-208
    DOI: 10.1111/j.1468-0084.2007.00472.x
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