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Euro Area Business Confidence and Covid-19

Gene Ambrocio

No 4/2021, Research Discussion Papers from Bank of Finland

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.

JEL-codes: E23 E66 E71 I12 (search for similar items in EconPapers)
Date: 2021-03-15
New Economics Papers: this item is included in nep-eec and nep-mac
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