The anatomy of sentiment-driven fluctuations / by Sushant Acharya, Jess Benhabib and Zhen Huo.: FB3-5/2021-33E-PDF
"We show that sentiments—self-fulfilling changes in beliefs that are orthogonal to fundamentals—can drive persistent aggregate fluctuations under rational expectations in a beauty contest game. Such fluctuations can occur even in the absence of exogenous aggregate fundamental shocks. Moreover, sentiments alter the volatility and persistence of aggregate outcomes in response to fundamental shocks. We provide (i) necessary conditions under which sentiments can affect aggregate outcomes in equilibrium and (ii) conditions under which sentiments drive persistent fluctuations and when they only affect aggregate outcomes contemporaneously. We also show that sentiment equilibria are stable under least-squares learning while the fundamental equilibrium is not"--Abstract, page iii.
Permanent link to this Catalogue record:
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| Department/Agency | Bank of Canada, issuing body. |
|---|---|
| Title | The anatomy of sentiment-driven fluctuations / by Sushant Acharya, Jess Benhabib and Zhen Huo. |
| Series title | Staff working paper = Document de travail du personnel, 1701-9397 ; 2021-33 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "Last updated: July 14, 2021." Includes bibliographical references (pages 30-33). |
| Publishing information | Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2021. ©2021 |
| Author / Contributor | Acharya, Sushant, author. |
| Description | 1 online resource (iii, 43 pages) : colour illustrations. |
| Catalogue number |
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| Subject terms | Business cycles -- Econometric models. Cycles économiques -- Modèles économétriques. |
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