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Sentiment Cyclicality

Author

Listed:
  • Orlando Gomes

    (Lisbon Accounting and Business School (ISCAL/IPL) & Business Research Unit (UNIDE/ISCTE-IUL), Lisbon, Portugal)

Abstract

The paper investigates the dynamics of a model of sentiment switching. The model is built upon rumor propagation theory and it is designed to uncover, for a given population, the social process through which optimistic individuals might become pessimistic or the other way around. The outcome is a scenario of perpetual motion with the shares of optimistic and pessimistic agents varying persistently over time. On a second stage, the cyclical sentiments setup is attached to a mechanism of formation of expectations based on the notion of optimized rationality, leading to a description of the macro economy in which aggregate output and inflation exhibit sentiment driven fluctuations. The proposed model contributes to a recent strand of macroeconomic literature that recovers the Keynesian notions of animal spirits, market sentiments and waves of optimism and pessimism.

Suggested Citation

  • Orlando Gomes, 2015. "Sentiment Cyclicality," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 9(2), pages 104-134, December.
    • Handle: RePEc:fau:aucocz:au2015_104
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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