Laura Nowzohour, Livio Stracca, 15 December 2017

At an intuitive level, economists and non-economists alike find it plausible that economic sentiment and economic developments are related. This column surveys recent theoretical and empirical work on the role of sentiment as a driver of the business cycle. Sentiment measures are found to be weakly correlated at the country level, but highly correlated across countries. Further, sentiment seems most closely correlated with economic and financial variables, and tends to be forward looking.

Jon Danielsson, Morgane Fouché, Robert Macrae, 10 June 2016

The threat to the financial system posed by cyber risk is often claimed to be systemic. This column argues against this, pointing out that almost all cyber risk is microprudential. For a cyber attack to lead to a systemic crisis, it would need to be timed impeccably to coincide with other non-cyber events that undermine confidence in the financial system and the authorities. The only actors with enough resources to affect such an event are large sovereign states, and they could likely create the required uncertainty through simpler, financial means. 

Thomas Hintermaier, Winfried Koeniger, 09 January 2016

Crises of confidence turn booms into busts. Bloated household balance sheets and high debt offer the right ingredients for a confidence-driven housing bust. This column develops an analytic framework that accommodates the potential role of confidence fluctuations as a source of uncertainty in the economy. Current debt levels are shown to determine the exposure to crises of confidence. The results point to a clear role for macroprudential policy in the prevention of such crises. 

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