unpredictable economic environments collapse confidence
Mendonça and Almeida 19 — Helder Ferreira de Mendonça, Professor of Economics at Fluminense Federal University, and André Filipe Guedes Almeida, PhD in Economics from the Fluminense Federal University, 2019 (“Importance of credibility for business confidence: evidence from an emerging economy,” Empirical Economics, Available Online at https://link.springer.com/article/10.1007/s00181-018-1533-5)
In relation to the effects of institutional instability on business confidence, the results suggest that unstable environments can deteriorate the entrepreneur’s optimism. The coefficients on GOV are negative in most of the models and significant in half of them. The negative evaluation of the actions and policies of the federal government indicates to the entrepreneurs an unstable and volatile environment, undermining their confidence. Although the coefficients on TOR have not presented statistical significance, the negative sign is predominant which in turn suggests that the institutional instability of the central bank can affect negatively the entrepreneur’s confidence. Finally, the coefficients on subprime are negative and significant in all models, thereby leaving no doubt that a crisis of this dimension deteriorates business confidence.