Working Paper
Sentiments and aggregate demand fluctuations
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 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);
Access Documents
File(s): File format is application/pdf http://research.stlouisfed.org/wp/2012/2012-039.pdf
Authors
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2012
Number: 2012-039