More than a feeling: Confidence, uncertainty and macroeconomic fluctuations

Arbeitspapier

Economists, observers and policy-makers often emphasize the role of sentiment as a potential driver of the business cycle. In this paper we provide three contributions to this debate. First, we critically survey the existing literature on sentiment (considering both confidence and uncertainty) and economic activity. Second, we review existing empirical measures of sentiment, in particular consumer confidence, stock market volatility (SMV) and Economic Policy Uncertainty (EPU), on monthly data for 27 countries, 1985-2016. Third, we identify some new stylized facts based on international evidence. While different measures are surprisingly lowly correlated on average in each country, they are typically highly positively correlated across countries, suggesting the existence of a global factor. Consumer confidence has the closest co-movement with economic and financial variables, and most of the correlations are contemporaneous or forward-looking, consistent with the view that economic sentiment is indeed a driver of activity.

Object Details

• ISBN: 978-92-899-2822-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2100

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Macro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy‡ ; International Business Cycles ; International Financial Markets ; Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
• Subject: animal spirits ; confidence ; uncertainty ; business cycles ; dynamic correlations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Nowzohour, Laura ; Stracca, Livio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2866/796782
• Handle: http://hdl.handle.net/10419/175724
• Last update: 10.03.2025, 11:44 AM CET