Sentiment Cyclicality
Sentiment Cyclicality
Author(s): Orlando GomesSubject(s): Labor relations, Socio-Economic Research
Published by: Univerzita Karlova v Praze - Institut ekonomických studií
Keywords: Sentiments; animal spirits; business cycles; rumor propagation; New-Keynesian; macroeconomics; optimized rationality;
Summary/Abstract: The paper investigates the dynamics of a model of sentiment switching. The model is built upon rumor propagation theory and it is designed to uncover, for a given population, the social process through which optimistic individuals might become pessimistic or the other way around. The outcome is a scenario of perpetual motion with the shares of optimistic and pessimistic agents varying persistently over time. On a second stage, the cyclical sentiments setup is attached to a mechanism of formation of expectations based on the notion of optimized rationality, leading to a description of the macro economy in which aggregate output and inflation exhibit sentiment driven fluctuations. The proposed model contributes to a recent strand of macroeconomic literature that recovers the Keynesian notions of animal spirits, market sentiments and waves of optimism and pessimism.
Journal: Czech Economic Review
- Issue Year: 9/2015
- Issue No: 02
- Page Range: 104-134
- Page Count: 31
- Language: English