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A role for confidence: volition regimes and news

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  • Saccal, Alessandro

Abstract

Economic literature exhibits a variety of empirical structural impulse response function (SIRF) patterns in real consumption and real output due to changes in confidence or sentiment, with particular regard to the USA and the EA. This work replicates them in the orbit of a neo-Keynesian dynamic stochastic general equilibrium (NK-DSGE) model especially characterised by macroeconomic agents and derived from start to end. Confidence is specifically modelled as an endogenous variable characterised by a coalescence of three processes regulated by a degree of volition, the processes being permanent technology, transitory technology and noise technology. The first two processes affect real production technology with a delay of one lag, while the third does not at all. Short run responses to changes in confidence are displayed whenever the degree of volition allow confidence to shift real consumption and aggregate labour, thereby being non-negligible. Whenever the degree of volition were by contrast negligible exogenous shocks in noise technology would cause no fluctuations in real consumption and real output whatsoever.

Suggested Citation

  • Saccal, Alessandro, 2023. "A role for confidence: volition regimes and news," MPRA Paper 117484, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117484
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    References listed on IDEAS

    as
    1. Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-3070, December.
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    More about this item

    Keywords

    aggregate labour; confidence; volition; permanent technology; transitory technology; noise technology; real economic activity; real consumption; real output.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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