Terrorism and economic sentiment in European countries

Purpose - Terrorist events are unforeseen and have the potential to shake and rattle markets and investors. The purpose of this study is to examine whether major terrorist incidents have affected the Economic Sentiment Indicator (ESI) in four European countries. Methodology/approach - An index is constructed that weights the severity of each event and then used to evaluate through the use of vector autoregressive and impulse response analysis estimation techniques whether or not and to what extent the ESI has been affected. Findings - Effects were more pronounced and evident in the case of France and Germany while the ESI in Spain and Great Britain did not appear to be particularly affected by terrorist incidents. Research limitations/implications - The effects of terrorism on economic sentiment in other countries will provide additional evidence that will allow more robust and conclusive statistical inferences. Originality/value of the chapter - The impact of terrorist activity on the ESI for the four European countries studied here has not been examined before using VAR and impulse response analysis. Copyright © 2014 by Emerald Group Publishing Limited