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Does confidence matter for economic growth? An analysis from the perspective of policy effectiveness

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  • Guo, Yumei
  • He, Shan

Abstract

The term “confidence” is often used in relation to economic issues, and has been increasingly discussed in the media and by policy makers since the 2008 global financial crisis. However, the question remains of whether confidence actually affects economic growth. Using panel data on 41 countries from 1991 to 2017, we study how consumer and business confidence affect economic growth. We find that confidence positively affects economic growth, and that this effect is amplified during recessions and in low-confidence situations. Further analysis shows that confidence has a greater effect during recessions by amplifying the effect of monetary and fiscal policies. The results of generalized method of moments analysis prove the robustness of the main findings. In general, our study reveals that confidence plays a significant role in the economy, thus supporting the notion that governments should give more consideration to confidence when trying to stimulate the economy.

Suggested Citation

  • Guo, Yumei & He, Shan, 2020. "Does confidence matter for economic growth? An analysis from the perspective of policy effectiveness," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1-19.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:1-19
    DOI: 10.1016/j.iref.2020.04.012
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    Cited by:

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    2. Helder Ferreira de Mendonça & Eduardo Schirmer Finn, 2022. "Can credibility offset electricity price effect on business confidence? An empirical investigation from a large emerging economy," Applied Economics, Taylor & Francis Journals, vol. 54(11), pages 1229-1242, March.
    3. Huijian Han & Zhiming Li & Zongwei Li, 2023. "Using Machine Learning Methods to Predict Consumer Confidence from Search Engine Data," Sustainability, MDPI, vol. 15(4), pages 1-12, February.
    4. Wang, Chendi & Ferrara, Federico Maria & Sattler, Thomas, 2023. "Too Fragile to Succeed? Electoral Strength, Austerity and Economic Confidence," OSF Preprints 93ceq, Center for Open Science.
    5. Lawal, Adedoyin Isola & Ozturk, Ilhan & Olanipekun, Ifedolapo O. & Asaleye, Abiola John, 2020. "Examining the linkages between electricity consumption and economic growth in African economies," Energy, Elsevier, vol. 208(C).

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    More about this item

    Keywords

    Consumer confidence; Business confidence; Economic growth; Policy effectiveness; Recessions;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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