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Euro area business confidence and Covid-19

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  • Ambrocio, Gene

Abstract

I study the effects of the Covid-19 pandemic on business confidence in 11 Euro area countries and its consequent impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as average household confidence in neighboring countries. I find evidence suggesting that the confidence and expectations channel was an important component to the economic transmission of Covid-19. A one standard deviation drop in business confidence leads to between 5-6 and 9 percent fall in economic activity in the industrial and wholesale and retail trade sectors respectively. These results highlight the importance of managing confidence and expectations in crises episodes.

Suggested Citation

  • Ambrocio, Gene, 2021. "Euro area business confidence and Covid-19," Bank of Finland Research Discussion Papers 4/2021, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2021_004
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    References listed on IDEAS

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    1. Farooque, Omar Al & Baghdadi, Ghasan & Trinh, Hai Hong & Khandaker, Sarod, 2023. "Stock liquidity during COVID-19 crisis: A cross-country analysis of developed and emerging economies, and economic policy uncertainty," Emerging Markets Review, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Business confidence; survey expectations; Covid-19;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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