We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
SENTIMENTS.
- Authors
ANGELETOS, GEORGE-MARIOS; LA'O, JENNIFER
- Abstract
This paper develops a new theory of fluctuations-one that helps accommodate the notions of "animal spirits" and "market sentiment" in unique-equilibrium, rational-expectations, macroeconomic models. To this goal, we limit the communication that is embedded in a neoclassical economy by allowing trading to be random and decentralized. We then show that the business cycle may be driven by a certain type of extrinsic shocks which we call sentiments. These shocks formalize shifts in expectations of economic activity without shifts in the underlying preferences and technologies; they are akin to sunspots, but operate in unique-equilibrium models. We further show how communication may help propagate these shocks in a way that resembles the spread of fads and rumors and that gives rise to boom-and-bust phenomena. We finally illustrate the quantitative potential of our insights within a variant of the RBC model.
- Subjects
BUSINESS cycles; SENTIMENT analysis; ECONOMIC activity; CONFIDENCE; DECENTRALIZATION in management; CRITICAL thinking
- Publication
Econometrica, 2013, Vol 81, Issue 2, p739
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA10008