What drives consumer confidence in times of financial crises? Evidence for the Netherlands

Five years after Lehman Brothers defaulted, the Dutch consumer confidence is still very low. Based on a monthly time series analysis from 1978 onwards, we provide evidence that general economic indicators are not sufficient to explain consumer sentiment. We show that during the Great Recession confidence drops are magnified by the decline in the public's trust in the financial sector and in Europe. Next to financial stability, price stability and political stability are found to be crucial for consumer confidence. Furthermore, we identify autonomous waves of optimism and pessimism. We interpret this as evidence of Keynes' notion of animal spirits. Full recovery of consumer confidence might take long.