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Animal spirits and business cycles

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  • Rhys M. Bidder

Abstract

Animal spirits are often suggested as a cause of business cycles, but they are very difficult to define. Recent research proposes a novel explanation based on the changing level of risk over time and people?s uncertainty about how the world works. The interaction of these two can lead to significant business cycle fluctuations in response to spikes in volatility. This finding gives researchers an alternative to irrational behavior as an explanation for why swings in consumer sentiment appear to drive the business cycle.

Suggested Citation

  • Rhys M. Bidder, 2015. "Animal spirits and business cycles," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00045
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    References listed on IDEAS

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    1. Juan Rubio-Ramirez & Jesus Fernandez-Villaverde & Pablo A. Guerron-Quintana, 2010. "Fortune or Virtue: Time Variant Volatilities versus Parameter Drifting in U.S. Data," 2010 Meeting Papers 270, Society for Economic Dynamics.
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    Cited by:

    1. Yuriy Bilan & Maryna Brychko & Anna Buriak & Tetyana Vasilyeva, 2019. "Financial, business and trust cycles: the issues of synchronization," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 113-138.

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