Business Cycles and the Role of Confidence: Evidence from Europe

Robert McNabb and Karl Taylor

No 02/3, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Using an under-utilised dataset on consumer and business confidence indicators across the UK, France, Italy and the Netherlands, this paper considers the extent to which such indicators are linked to GDP and the business cycle. We adopt, cross correlation descriptive statistics, Granger causality tests, variance decomposition, and forecast probit tests to investigate the properties of the data. In general consumer and business confidence indicators are leading indicators and pro-cyclical. There is some evidence of causality between the indicators and GDP and confidence indicators would appear to have good predictive power of cycle turning points in relation to other leading indicators.

Date: 2002-02
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Related works:
Journal Article: Business Cycles and the Role of Confidence: Evidence for Europe* (2007)
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