Sentiments and aggregate demand fluctuations
Jess Benhabib (),
Pengfei Wang () and
Yi Wen ()
No 2012-039, Working Papers from Federal Reserve Bank of St. Louis
We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made un- der imperfect information about aggregate demand, optimal decisions based on sentiments can generate stochastic self-fulfilling rational expectations equilibria in standard economies without aggregate shocks, externalities, persistent informational frictions, or even any strategic comple- mentarity. Our general equilibrium model is deliberately simple, but could serve as a benchmark for more complicated equilibrium models with additional features.
Keywords: Keynesian economics; Equilibrium (Economics) (search for similar items in EconPapers)
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Journal Article: Sentiments and Aggregate Demand Fluctuations (2015)
Working Paper: Sentiments and Aggregate Demand Fluctuations (2012)
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