Does Business Confidence Matter for Investment?
Hashmat Khan () and
Santosh Upadhayaya ()
Additional contact information
Santosh Upadhayaya: Department of Economics, Carleton University
No 17-13, Carleton Economic Papers from Carleton University, Department of Economics
Business confidence is a well-known leading indicator of future output. Whether it has information about future investment is, however, unclear. We determine how informative business confidence is for investment growth independently of other variables using US business confidence survey data for 1955Q1–2016Q4. Our main findings are: (i) business confidence has predictive ability for investment growth; (ii) remarkably, business confidence has superior forecasting power, relative to conventional predictors, for investment downturns over 1–3 quarter forecast horizons and for the sign of investment growth over a2–quarter forecast horizon; and (iii) exogenous shifts in business confidence reflect short-lived non-fundamental factors, consistent with the ‘animal spirits’ view of investment. Our findings have implications for improving investment forecasts, developing new business cycle models, and studying the role of social and psychological factors determining investment growth.
Keywords: Business confidence; Investment; Forecasting; Downturns; Directional forecasts (search for similar items in EconPapers)
JEL-codes: C32 E22 E32 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for, nep-hme and nep-mac
Date: 2017-12-21, Revised 2019-03-20
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published: Carleton Economic Papers
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:17-13
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Carleton Economic Papers from Carleton University, Department of Economics C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada.
Bibliographic data for series maintained by Sabrina Robineau ().