Confidence and Economic Activity in Europe.

This study 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 (EA) and eight European nations. The results are mixed: responses exhibit reversibility and irreversibility, suggesting the formulation of a theoretical mechanism capable of formalizing such a variety. The potential causes behind confidence in the same nations are, moreover, evaluated through a panel data regression. The results indicate aversion towards output, inflation, unemployment, monetary independence and financial openness, but favor population, exchange rate rigidity and the accumulation of sovereign debt. [ABSTRACT FROM AUTHOR]