How to Turn a Recession into a Depression: The Role of the Media, of the Politicians, and of the Political Analysts
AbstractBy modifying slightly a standard neoclassical-synthesis macroeconomic model, this paper investigates the effects of an adverse supply or demand shock on output, employment, investment, prices, interest rates, and the exchange rate. The paper focuses on the possibility of the magnification of these effects by the media, the politicians, and the political analysts, who induce herd-behavior by overstating the size of the shock. I find that such behavior destabilizes the economy by magnifying the amplitude of the business cycle and by hurting private investment, which might cause expansions to be shorter and contractions to last longer.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 45391.
Date of creation: 31 Mar 2010
Date of revision: 15 Sep 2010
Publication status: Published in Modern Economy November.1(2010): pp. 144-148
Media; Newsmakers; Spin; Business Cycle; Herd Behavior; Neoclassical Synthesis;
Find related papers by JEL classification:
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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