Relationship between financial stress and business confidence in PIGS countries: Evidence based on an ARDL approach

This study investigates the cointegration and causality relationships between business confidence and financial stress for the PIGS countries (Portugal, Italy, Greece, and Spain) based on monthly data covering between January 2008 and December 2019. Panel ARDL methodology and Pooled Mean Group estimation techniques are used to test the short-run and long-run relationships between the variables. The findings indicate that financial stress is significantly and negatively affected by business confidence in the examined countries in both the long run and short run. Furthermore, the current month's financial stress level is negatively affected by the last month's business confidence and financial stress levels. Finally, a univariate causality relationship running from business confidence towards financial stress is revealed.