Business Cycles and the Role of Confidence: Evidence for Europe

24 Pages Posted: 11 Apr 2007

See all articles by Karl Taylor

Karl Taylor

University of Sheffield - Department of Economics

Robert McNabb

Cardiff University - Cardiff Business School

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

Taylor, Karl B. and McNabb, Robert, Business Cycles and the Role of Confidence: Evidence for Europe. Oxford Bulletin of Economics and Statistics, Vol. 69, No. 2, pp. 185-208, April 2007. Available at SSRN: https://ssrn.com/abstract=978652 or http://dx.doi.org/10.1111/j.1468-0084.2007.00472.x

Karl B. Taylor (Contact Author)

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

Robert McNabb

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff CF10 3EU
United Kingdom
+44 (0) 29 2087 5210 (Phone)
+44 (0) 29 2087 4419 (Fax)

HOME PAGE: http://www.cf.ac.uk/carbs/econ/mcnabb/

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