Confidence and economic activity in Europe

This work supplies additional empirical evidence of responses in real economic activity to shocks in confidence. A structural vector autoregression (SVAR) featuring confidence, real consumption and real output is constructed with respect to the Euro area and eight European nations. Results are mixed: responses exhibit reversibility and irreversibility, suggesting the formulation of a theoretical mechanism capable of formalising such a variety. The potential causes behind confidence in the same nations are moreover evaluated through a panel data regression. Results indicate aversion towards output, inflation, unemployment, monetary independence and financial openness, but favour population, exchange rate rigidity and the accumulation of sovereign debt