Understanding Global Confidence Cycles

Ayhan Kose (IMF)

Abstract:

We study the main cyclical features of consumer and business confidence using a new  comprehensive database over the 1960Q1-2017Q2 period. The database covers business  confidence for 91 countries and consumer confidence for 95 countries, with almost half of the  countries in each series comprising of emerging and developing economies. A novel feature of  the database is that confidence measures are carefully standardized across countries so that they  are suitable for cross-country analysis. We report three major results. First, business and  consumer confidence are procyclical and tend to lead business and financial cycles. Second,  confidence measures help forecast output, house prices and credit. Third, business and  consumer confidence exhibit sizeable comovement across countries, suggesting the presence of  a global confidence cycle.