Consumer and business confidence connectedness in the euro area: a tale of two crises

Abstract

Purpose: To examine the propagation of consumer and business confidence in the euro area (EA) with a particular focus on the global financial crisis (GFC), the European sovereign debt crisis (ESDC), and the COVID-19-induced Great Lockdown. Design/methodology/approach: The authors apply Diebold and Yilmaz’s connectedness framework and the improved method based on the Time-Varying Parameter Vector Autoregressive model. Findings: The authors find that although the evolution of business confidence marked the GFC and the ESDC the role of consumer confidence (mainly in those countries with stricter containment and closure measures) increased in the COVID-19-induced crisis. Originality/value: The findings are related to the different origins of the examined crisis periods, and the analysis of their interrelationship is a very relevant topic for future research.