Behavioural economics is useful also in macroeconomics: the role of animal spirits

Paul De Grauwe and Yuemei Ji ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Dynamic stochastic general equilibrium models are still dominant in mainstream macroeconomics, but they are only able to explain business cycle fluctuations as the result of exogenous shocks. This paper uses concepts from behavioural economics and discusses a New Keynesian macroeconomic model that generates endogenous business cycle fluctuations driven by animal spirits. Our discussion includes two applications. One is on the optimal level of inflation targeting under a zero lower bound constraint. The other is on the role of animal spirits in explaining the synchronization of business cycles across countries.

Keywords: Animal; spirits; Behavioural; macroeconomics; Monetary; policy; Inflation; target; Zero; lower; bound; Business; cycles (search for similar items in EconPapers)
JEL-codes: E32 E58 F42 (search for similar items in EconPapers)
Date: 2018-03-14
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Comparative Economic Studies, 14, March, 2018. ISSN: 0888-7233

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http://eprints.lse.ac.uk/87286/ Open access version. (application/pdf)

Related works:
Journal Article: Behavioural Economics is Useful Also in Macroeconomics: The Role of Animal Spirits (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:87286

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