Do Optimists Grow Faster and Invest More?

Marcin Kacperczyk and Zbigniew Kominek (ye)
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Zbigniew Kominek (ye): Europe Economics Research Limited

No 109, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: The paper discusses a two-period model of an economy with two industries, positive production externalities and random shocks to production functions. Multiple equilibria that arise in such a framework can be ranked according to agent's optimism. The equilibria with higher levels of optimism are characterized by higher economic growth, higher production growth and higher proportion of investments in externality yielding industries. Using the U.S. data, it is shown that changes in sentiment predict economic growth. Sentiment has significant positive impact on industry growth, aggregate economic growth and relative levels of investment in industries. Externality yielding industries also appear to be more affected by shifts in sentiment than non-externality yielding industries.

Date: 2002-08-29
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2002:109

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