Euro Area Business Confidence and COVID-19

24 Pages Posted: 16 Mar 2021 Last revised: 17 Mar 2021

Date Written: March 15, 2021

Abstract

I study the effects of the Covid-19 pandemic on business confidence in 11 Euro area countries and its consequent impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as average household confidence in neighboring countries. I find evidence suggesting that the confidence and expectations channel was an important component to the economic transmission of Covid-19. A one standard deviation drop in business confidence leads to between 5-6 and 9 percent 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 crises episodes.

JEL Classification: E23, E66, E71, I12

Suggested Citation

Ambrocio, Gene, Euro Area Business Confidence and COVID-19 (March 15, 2021). Bank of Finland Research Discussion Paper No. 4/2021, Available at SSRN: https://ssrn.com/abstract=3805508

Gene Ambrocio (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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