Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics
Peter Flaschel and
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Peter Flaschel: Bielefeld University
No 1401, Working Papers from New School for Social Research, Department of Economics
The main objective of the present paper is to investigate explicitly the role of the state of confidence for the macroeconomic dynamics of two interacting economies using the opinion dy- namics approach by Weidlich and Haag (1983) and Lux (1995). Particularly, the overall state of confidence in the world (two-country) economy plays not only for the dynamics of the nominal ex- change rate but also for the dynamics of the real economy through the determination of aggregate investment. This novel feature allows us to consider far richer international macroeconomic inter- actions than most standard models. Further, it features wage-price dynamics that interact with output and employment fluctuations – leading to a Goodwin (1967)-type of distributive cycle –, as well as debt dynamics due to a credit-financed investment behavior. The resulting framework is both advanced as well as flexible enough to generate various types of persistent fluctuations, and also complex dynamics.
Keywords: Macroeconomic (In-)Stability; Business Cycles; Opinion Dynamics; FX Markets (search for similar items in EconPapers)
JEL-codes: E12 E24 E31 E52 (search for similar items in EconPapers)
Pages: 20 pages
New Economics Papers: this item is included in nep-mac
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http://www.economicpolicyresearch.org/econ/2014/NSSR_WP_012014.pdf First version, 2014 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1401
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