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Believe it or not, it’s all about Beliefs !

Patrick Fève (), Fabrice Collard () and Alain Guay
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Patrick Fève: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Fabrice Collard: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Alain Guay: UQAM - Université du Québec à Montréal = University of Québec in Montréal

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Abstract: This paper studies the impact of Higher Order Belief (HOB) shocks, representing shifts in agents' beliefs about others' beliefs, on macroeconomic outcomes. The dynamic causal effects of these shocks are identified by leveraging a combination of a proxy-VAR approach and DSGE-based instruments. Our findings suggest that HOB shocks are indeed a key driver of the business cycle and account for a sizeable share of the observed business cycle volatility. Finally, our identification approach ensures that these shocks are not confounded with other structural/fundamental shocks.

Keywords: Higher Order Beliefs; Business cycles; Proxy-VAR; DSGE (search for similar items in EconPapers)
Date: 2024-11-15
Note: View the original document on HAL open archive server: https://hal.science/hal-04784888v1
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