The Origins and Propagation of Animal Spirits Shocks

Makoto Nirei and Xavier Ragot ()
Additional contact information
Xavier Ragot: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research

Sciences Po Economics Publications (main) from HAL

Abstract: This paper presents a business cycle model where animal spirits shocks, originating from idiosyncratic productivity shocks, drive the comovement of investment, consumption, hours worked, and inflation. In the fully characterized comovement mechanism, real wage rigidity and diminishing returns to labor, resulting from the presence of capital, play a crucial role: a positive investment demand shock raises labor demand, decreases the marginal product of labor, and increases the marginal cost of producing final goods. Our model features a firm's lumpy investment, leading to a state-dependent multiplier effect, which depends on the firm's capital profile within an inaction band. Lumpy investments, propagated through the aggregate demand externality, generate an investment avalanche. This offers a microfoundation for our animal spirits shocks and produces aggregate fluctuations without assuming exogenous aggregate shocks.

Keywords: Investment demand shocks; Procyclical inflation; Endogenous business cycles; Lumpy investment; Investment avalanche (search for similar items in EconPapers)
Date: 2025-12
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05481602v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://sciencespo.hal.science/hal-05481602v1/document (application/pdf)

Related works:
Working Paper: The Origins and Propagation of Animal Spirits Shocks (2025)
Working Paper: The Origins and Propagation of Animal Spirits Shocks (2025)
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:hal:spmain:hal-05481602

Access Statistics for this paper

More papers in Sciences Po Economics Publications (main) from HAL
Bibliographic data for series maintained by Contact - Sciences Po Department of Economics ().