Euro-area business confidence and COVID-19

Gene Ambrocio

Applied Economics, 2022, vol. 54, issue 43, 4915-4929

Abstract: I study the effects of the COVID-19 pandemic on business confidence in 11 Euro area countries and its impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as household confidence in neighboring countries. I find evidence suggesting that the confidence channel was a sizable component to the economic transmission of COVID-19. A one standard deviation drop in business confidence leads to between 5–6 and 9% 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 crisis episodes.

Date: 2022
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Working Paper: Euro area business confidence and Covid-19 (2021)
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DOI: 10.1080/00036846.2022.2038777

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