Sentiments and aggregate demand fluctuations

Jess Benhabib, Pengfei Wang, Yi Wen

    Research output: Contribution to journalArticle

    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, nonconvexities, 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.

    Original languageEnglish (US)
    Pages (from-to)549-585
    Number of pages37
    JournalEconometrica
    Volume83
    Issue number2
    DOIs
    StatePublished - Mar 1 2015

    Fingerprint

    Aggregate demand
    Demand fluctuation
    Sentiment
    Rational expectations equilibrium
    Imperfect information
    Non-convexity
    Externalities
    Benchmark
    Strategic complementarity
    Rational expectations
    Output fluctuations
    Friction

    Keywords

    • Keynesian self-fulfilling equilibria
    • Sentiments
    • Sunspots

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Benhabib, J., Wang, P., & Wen, Y. (2015). Sentiments and aggregate demand fluctuations. Econometrica, 83(2), 549-585. https://doi.org/10.3982/ECTA11085

    Sentiments and aggregate demand fluctuations. / Benhabib, Jess; Wang, Pengfei; Wen, Yi.

    In: Econometrica, Vol. 83, No. 2, 01.03.2015, p. 549-585.

    Research output: Contribution to journalArticle

    Benhabib, J, Wang, P & Wen, Y 2015, 'Sentiments and aggregate demand fluctuations', Econometrica, vol. 83, no. 2, pp. 549-585. https://doi.org/10.3982/ECTA11085
    Benhabib, Jess ; Wang, Pengfei ; Wen, Yi. / Sentiments and aggregate demand fluctuations. In: Econometrica. 2015 ; Vol. 83, No. 2. pp. 549-585.
    @article{4db45765ae4443b8a4391ac4eb9620d6,
    title = "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 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, nonconvexities, 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.",
    keywords = "Keynesian self-fulfilling equilibria, Sentiments, Sunspots",
    author = "Jess Benhabib and Pengfei Wang and Yi Wen",
    year = "2015",
    month = "3",
    day = "1",
    doi = "10.3982/ECTA11085",
    language = "English (US)",
    volume = "83",
    pages = "549--585",
    journal = "Econometrica",
    issn = "0012-9682",
    publisher = "Wiley-Blackwell",
    number = "2",

    }

    TY - JOUR

    T1 - Sentiments and aggregate demand fluctuations

    AU - Benhabib, Jess

    AU - Wang, Pengfei

    AU - Wen, Yi

    PY - 2015/3/1

    Y1 - 2015/3/1

    N2 - 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, nonconvexities, 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.

    AB - 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, nonconvexities, 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.

    KW - Keynesian self-fulfilling equilibria

    KW - Sentiments

    KW - Sunspots

    UR - http://www.scopus.com/inward/record.url?scp=84961736678&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=84961736678&partnerID=8YFLogxK

    U2 - 10.3982/ECTA11085

    DO - 10.3982/ECTA11085

    M3 - Article

    VL - 83

    SP - 549

    EP - 585

    JO - Econometrica

    JF - Econometrica

    SN - 0012-9682

    IS - 2

    ER -