Business cycle synchronization in a simple Keynesian macro-model with socially transmitted economic sentiment and international sentiment spill-over
AbstractWe propose a simple Keynesian business cycle model in which national income expectations of heterogeneous interacting investors affect their investment decisions. The investors' expectation formation is influenced by their sentiment: investors who hold optimistic views about the future state of the economy expect a higher aggregate demand in the following period and thus invest more than pessimistic investors. The investors' sentiment is, in turn, subject to socio-economic interactions. Simulations show that our model has the potential to generate complex business cycle dynamics. Based on that framework, we provide a three-country model of business cycle synchronization in which spill-over effects on the level of sentiment synchronize national cycles, provided that investors believe that the economies are indeed coupled.
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Bibliographic InfoArticle provided by Elsevier in its journal Structural Change and Economic Dynamics.
Volume (Year): 19 (2008)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/525148
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