Unveiling Dynamic Connectedness: How Macroeconomic Variables Drive Consumer and Business Confidence

Abstract

Economic confidence plays a crucial role in assessing economic resilience and market reactions. Extensive literature has explored the factors influencing economic confidence, often focusing on either consumer or business perspectives. Diverging from this existing research, our study delves into the determinants of both consumer and business confidence, specifically examining variables such as US Treasury maturity, Federal Fund Rate, geopolitical risk, Moody’s Seasoned AAA Corporate Bond Yield, short-term interest rate, and oil/gas prices. Moreover, we use the time-varying parameter vector autoregression (TVP-VAR) asymmetric connectedness model. This approach allows us to investigate how variables' roles in transmitting or receiving spillovers evolve over time, capturing both positive and negative spillover effects.