Pessimism could plunge us into a recession

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For over a year, various studies have been reporting that Canadian businesses and consumers are fairly pessimistic about the economy. Evaluating the extent to which this wave of pessimism could cause an economic slowdown presents a methodological challenge, one the authors tackled in a recent CIRANO study. Drawing upon Vector Autoregression (VAR) methodology as well as Canadian and American historical data, the authors suggest that correlations between confidence and economic activity do indeed include a causal component. As a result, the recent declines observed in confidence indices could lead to an economic slowdown.  

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