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Consumer confidence, endogenous growth and endogenous cycles

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  • Gomes, Orlando

Abstract

Endogenous growth models are generally designed to address long term trends of growth. They explain how the economy converges to or diverges from a balanced growth path and they characterize aggregate behaviour given the optimization problem faced by a representative agent that maximizes consumption utility. In such frameworks, only potential output matters and all decisions, by firms and households, are taken assuming that any output gap does not interfere with the agents’ behaviour. In this paper, we develop growth models (without and with optimization) that depart from the conventional framework in the sense that consumption decisions take into account output fluctuations. Households will raise their propensity to consume in periods of expansion and they will lower it in phases of recession. Such a framework allows to introduce nonlinear features into the model, making it feasible to obtain, for reasonable parameter values, endogenous fluctuations. These are triggered by a Neimark-Sacker bifurcation.

Suggested Citation

  • Gomes, Orlando, 2007. "Consumer confidence, endogenous growth and endogenous cycles," MPRA Paper 2883, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:2883
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    References listed on IDEAS

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    Cited by:

    1. Jang, Tae-Seok & Sacht, Stephen, 2017. "Modeling consumer confidence and its role for expectation formation: A horse race," Economics Working Papers 2017-04, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Aslı Yüksel Mermod & Gitana Dudzevičiūtė, 2011. "Frequency domain analysis of consumer confidence, industrial production and retail sales for selected european countries," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 12(4), pages 589-602, March.
    3. Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(3), pages 309-327.

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    More about this item

    Keywords

    Endogenous growth; Endogenous business cycles; Nonlinear dynamics; Neimark-Sacker bifurcation;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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