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Authors
Advisor(s)
Abstract(s)
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.
Description
Keywords
sentiments, animal spirits, business cycles, rumor propagation, New-Keynesian macroeconomics, optimized rationality
Citation
Gomes, O. (2015). “Sentiment Cyclicality.” AUCO Czech Economic Review, vol. 9, nº 2, pp. 104-134.