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Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics

Author

Listed:
  • Matthieu Charpe

    () (International Labor Organization)

  • Carl Chiarella

    (University of Technology Sydney)

  • Peter Flaschel

    (Bielefeld University)

  • Christian R. Proaño

    (Department of Economics, New School for Social Research)

Abstract

The main objective of the present paper is to investigate explicitly the role of the state of confidence for the macroeconomic dynamics of two interacting economies using the opinion dy- namics approach by Weidlich and Haag (1983) and Lux (1995). Particularly, the overall state of confidence in the world (two-country) economy plays not only for the dynamics of the nominal ex- change rate but also for the dynamics of the real economy through the determination of aggregate investment. This novel feature allows us to consider far richer international macroeconomic inter- actions than most standard models. Further, it features wage-price dynamics that interact with output and employment fluctuations – leading to a Goodwin (1967)-type of distributive cycle –, as well as debt dynamics due to a credit-financed investment behavior. The resulting framework is both advanced as well as flexible enough to generate various types of persistent fluctuations, and also complex dynamics.

Suggested Citation

  • Matthieu Charpe & Carl Chiarella & Peter Flaschel & Christian R. Proaño, 2014. "Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics," Working Papers 1401, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1401
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2014/NSSR_WP_012014.pdf
    File Function: First version, 2014
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    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877.
    2. Lance Taylor & Stephen A. O'Connell, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 871-885.
    3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    4. Chiarella,Carl & Flaschel,Peter, 2011. "The Dynamics of Keynesian Monetary Growth," Cambridge Books, Cambridge University Press, number 9780521180184, January.
    5. Matthieu Charpe & Peter Flaschel & Hans-Martin Krolzig & Christian Proaño & Willi Semmler & Daniele Tavani, 2015. "Credit-driven investment, heterogeneous labor markets and macroeconomic dynamics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 163-181, April.
    6. Peter Flaschel & Florian Hartmann & Christopher Malikane & Christian Proaño, 2015. "A Behavioral Macroeconomic Model of Exchange Rate Fluctuations with Complex Market Expectations Formation," Computational Economics, Springer;Society for Computational Economics, vol. 45(4), pages 669-691, April.
    7. Christian Proaño, 2009. "(De-)Stabilizing two-country macroeconomic interactions in an estimated model of the U.S. and the Euro Area," International Economics and Economic Policy, Springer, vol. 6(4), pages 421-443, December.
    8. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
    9. Matthieu Charpe & Peter Flaschel & Florian Hartmann & Roberto Veneziani, 2012. "Towards Keynesian DSGD (isequilibrium) Modelling: Real-Financial Market Interactions with Heterogeneous Expectations Dynamics," IMK Working Paper 93-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Macroeconomic (In-)Stability; Business Cycles; Opinion Dynamics; FX Markets;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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