The propagation of business expectations within the European Union

Abstract

SummaryThis paper empirically investigates the propagation of firm expectations within the European Union (EU). To this end, we combine information from EU‐wide official business surveys with input–output data. Econometrically, we model interdependencies in economic activities via input–output linkages and apply space‐time models with common factors. The resulting evidence provides indication for the existence of substantial spillover effects in expectation formation. They are transmitted both upstream and downstream the European value chain, but the latter channel matters more.