Consumer confidence and the optimal timing of effective monetary stabilisation 150

Given the important role ascribed to confidence in the first two parts of this book, it certainly seems that the recent renewed interest in consumer and investor confidence has sound historical justification. This chapter extends the overview of consumer confidence presented in Chapter 7 to include the results of theoretical research on the possible role of confidence in macroeconomic stabilisation. In the model presented below we demonstrate the potential gains that might be achieved today through policies that explicitly target consumer confidence.