Animal Spirits, Financial Markets and Aggregate Instability

Wei Dai, Mark Weder and Bo Zhang ()

No 2017-08, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: People's animal spirits are a significant driver behind the fluctuations of the U.S. business cycle. This insight is demonstrated within an estimated artificial economy with financial market frictions. Animal spirits shocks account for around 40 percent of output fluctuations over the period from 1955 to 2014. Financial friction and technology shocks are considerably less important with best point estimates for both near 20 percent. We also find that the Great Recession, for the most parts, was caused by adverse shocks to expectations.

Keywords: Endogenous financial frictions; indeterminacy; animal spirits; business cycles; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-bec, nep-dcm, nep-mac and nep-pke
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Animal Spirits, Financial Markets, and Aggregate Instability (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2017-08

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