Response of Business and Consumer Confidence to Monetary Policy Shock

This paper empirically investigates how business and consumer confidence responds to monetary policy shock. Based on the vector autoregressive (VAR) analysis of the monthly changes in business and consumer confidence and the monthly Federal fund interest rates, the results show that both the changes in consumer confidence and business confidence negatively respond to monetary policy shock. The Granger causality tests show that monetary policy shock Granger-causes business confidence, but it does not Granger-cause consumer confidence. The findings of this study provide useful information for consumers, investors, businesses and policy makers in making sound consumption, investment and policy decisions