Euro-area business confidence and COVID-19
Ambrocio, Gene (04.03.2022)
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Numero43 ; 2022
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-202109131513
I study the effects of the COVID-19 pandemic on business confidence in 11 Euro area countries and its impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as household confidence in neighboring countries. I find evidence suggesting that the confidence channel was a sizable component to the economic transmission of COVID-19. A one standard deviation drop in business confidence leads to between 5–6 and 9% 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 crisis episodes.