Effects of fiscal consolidation on business confidence in the Euro Area

• Michail, Nektarios ^{[1] [1]} ; Savva, Christos ^[1] ; Koursaros, Demetris ^[1]
  1. [1] Cyprus University of Technology

     Cyprus University of Technology

     Chipre

     
• Localización: Economics and Business Letters, ISSN-e 2254-4380, Vol. 7, Nº. 2, 2018, págs. 76-83
• Idioma: inglés
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• Resumen

  • We employ a factor-augmented VAR (FAVAR) covering both domestic and international developments to examine the confidence effects of a fiscal shock, using a sample of six euro area countries. The results indicate that following a shock in total government expenditure, responses are country-specific, while a weak geographical pattern, i.e. a distinction between core and periphery countries can be observed. Overall, the confidence response is short-lived and returns to zero after a few quarters. Heterogeneity in country responses also indicates that the Bachmann and Sims (2012) conclusion suggesting the endogenous response of confidence explaining almost all of the fiscal-driven output expansion in recessions, may hold only in country-specific cases.