A role for confidence: volition regimes and news
Abstract
The economic literature presents a variety of empirical models of the structural impulse response function (SIRF) in real consumption and real output following changes in confidence or sentiment, particularly in the US and EA. This paper replicates them on the orbit of a neokeynesian dynamic stochastic general equilibrium (NK-DSGE) model characterized in particular by macroeconomic agents and derived from start to finish. Trust is specifically modeled as an endogenous variable characterized by a coalescence of three processes governed by a degree of volition, the processes being permanent technology, transient technology, and noise technology. The first two processes affect the actual production technology with a delay of one lag, while the third does not at all. The short-run responses to changes in confidence are shown whenever the degree of willingness allows confidence to change real consumption and aggregate labor, thus being non-negligible. Whenever the degree of volition was, by contrast, negligible, exogenous shocks in noise technology would cause no fluctuation in actual consumption and actual power.
References
[2]. Akerlof G. and Shiller R. (2008). “Animal spirits", https://press.princeton.edu/books/paperback/9780691145921/animal-spiritshttps://press.princeton.edu
[3]. Angeletos G.-M. and La'O J. (2013). “Sentiments", Econometrica.
[4]. Angeletos G.-M., Collard F. and Dellas H. (2018). “Quantifying confidence", Econometrica.
[5]. Barsky R. and Sims E. (2012). “Information, animal spirits, and the meaning of innovations in consumer confidence", American economic review.
[6]. Beaudry P. and Portier F. (2006). “Stock prices, news, and economic fluctuations", American economic review.
[7]. Blanchard O., L'Huillier J.-P. and Lorenzoni G. (2013). “News, noise, and fluctuations: an empirical exploration", American economic review.
[8]. Blanchard O. and Kahn C. (1980). “The solution of rational linear difference models under rational expectations", Econometrica.
[9]. Calvo G. (1983). “Staggered prices in a utility maximizing framework", Journal of monetary economics.
[10]. Chahrour R. and Jurado K. (2018). “News or noise? The missing link", American economic review.
[11]. Cochrane J. (1994). “Permanent and transitory components of GNP and stock prices", Quarterly journal of economics.
[12]. Fernández-Villaverde J., Rubio-Ramírez J., Sargent T. and Watson M. (2007). “ABCs (and Ds) of understanding VARs", American economic review.
[13]. Franchi M. (2013). “Comment on: Ravenna F. 2007. Vector autoregressions and reduced form representations of DSGE models. Journal of Monetary Economics 54, 2048-2064.", Dipartimento di scienze statistiche empirical economics and econometrics working papers series.
[14]. Keynes J. (1936). “The general theory of employment, interest and money", https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmployment.pdfhttps://www._les.ethz.ch
[15]. Lorenzoni G. (2009). “A theory of demand shocks", American economic review.
[16]. Pigou A. C. (1927). “Industrial fluctuations", https://archive.org/details/in.ernet.dli.2015.149659https://archive.org
[17]. Saccal A. (2022). “Confidence and economic activity in Europe", The IUP journal of applied economics.
[18]. Saccal A. (2023). “A finite, empirically useless and almost sure VAR representation for all minimal transition equations", MPRA.
[19]. Sims E. (2012). “News, non-invertibility, and structural VARs", Advances in econometrics.
[20]. Smets F. and Wouters R. (2005). “Comparing shocks and frictions in US and Euro Area business cycles: a Bayesian DSGE approach", Journal of applied econometrics.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.