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Sentiments and Aggregate Demand Fluctuations

Jess Benhabib (), Pengfei Wang () and Yi Wen ()

No 18413, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made under imperfect information about demand, optimal decisions based on sentiments can generate stochastic self-fulfilling rational expectations equilibria in standard economies without persistent informational frictions, externalities, non-convexities or strategic complementarities in production. The models we consider are deliberately simple, but could serve as benchmarks for more complicated equilibrium models with additional features.

JEL-codes: D8 D84 E3 E32 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-bec and nep-dge
Note: EFG
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Published as Jess Benhabib & Pengfei Wang & Yi Wen, 2015. "Sentiments and Aggregate Demand Fluctuations," Econometrica, Econometric Society, vol. 83, pages 549-585, 03.

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Journal Article: Sentiments and Aggregate Demand Fluctuations (2015) Downloads
Working Paper: Sentiments and aggregate demand fluctuations (2012) Downloads
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