EconPapers    
Economics at your fingertips  
 

On the Nature and Stability of Sentiments

Ryan Chahrour and Gaetano Gaballo ()

No 873, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We show that non-trivial aggregate fluctuations may originate with vanishingly- small common shocks to either information or fundamentals. These "sentiment" fluctuations can be driven by self-fulfilling variation in either first-order beliefs (as in Benhabib et al., 2015) or higher-order beliefs (as in Angeletos and La'O, 2013), due to an endogenous signal structure. We analyze out-of-equilibrium best-response functions in the underlying coordination game to study whether sentiment equilibria are stable outcomes of a convergent process. We nd that limiting sentiment equilibria are generally unattainable under both higher-order belief and adaptive learning dynamics, whereas equilibria without sentiment shocks show strong stability properties. Away from the limit case, however, multiple noisy rational expectations equilibria may be stable.

Keywords: imperfect information; animal spirits; expectational coordination (search for similar items in EconPapers)
JEL-codes: D82 D83 E3 (search for similar items in EconPapers)
Date: 2015-02-12, Revised 2015-05-05
New Economics Papers: this item is included in nep-mac, nep-mfd and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp873.pdf main text (application/pdf)

Related works:
Working Paper: On the Nature and Stability of Sentiments (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:873

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().

 
Page updated 2022-01-24
Handle: RePEc:boc:bocoec:873