International confidence spillovers and business cycles in small open economies

Michal Brzoza-Brzezina and Jacek Kotłowski

No 287, NBP Working Papers from Narodowy Bank Polski

Abstract: This paper draws from two observations in the literature. First, that shocks to entrepreneur or household confidence matter for economic outcomes. Second, that it is hard to explain the extent of cyclical comovement between economies taking into account their trade links only. We check empirically to what extent confidence fluctuations matter for business cycles and in particular for their comovement between economies. We focus on a large (euro area) and a small, nearby economy (Poland). Our results show that confidence fluctuations account for approximately 40% of business cycle fluctuations in the euro area. Spillovers of confidence shocks are also large. Our main finding is that the their direct impact (i.e. not via trade but through the cross-border spread of news and business sentiment) accounts for almost 40% of business cycle fluctuations in Poland.

Keywords: International spillovers; animal spirits; sentiments; business cycle (search for similar items in EconPapers)
JEL-codes: C32 E32 F44 (search for similar items in EconPapers)
Pages: 35
Date: 2018
New Economics Papers: this item is included in nep-dge, nep-eec, nep-knm, nep-mac and nep-opm
Note: We would like to thank Paul Beaudry, Fabio Milani, Fabien Rondeau and Grzegorz Szafrański for useful discussions. Comments received at the Conference on Computational and Financial Econometrics, ISCEF Conference and the seminar at Narodowy Bank Polski are gratefully acknowledged as well.
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Related works:
Journal Article: International confidence spillovers and business cycles in small open economies (2021)
Working Paper: International confidence spillovers and business cycles in small open economies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:287

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