Confidence and the Propagation of Demand Shocks

• 成果类型: Article
• 署名作者: Angeletos, George-Marios; Lian, Chen
• 署名单位: Massachusetts Institute of Technology (MIT); National Bureau of Economic Research; University of California System; University of California Berkeley
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdab064
• 发表日期: 2022
• 页码: 1085-1119
• 关键词: aggregate demand; business-cycle; sticky prices; expectations; INFORMATION; INVESTMENT; US; TECHNOLOGY; MODEL; news

摘要

We revisit the question of why shifts in aggregate demand drive business cycles. Our theory combines intertemporal substitution in production with rational confusion, or bounded rationality, in consumption and investment. The first element allows aggregate supply to respond to shifts in aggregate demand without nominal rigidity. The second introduces a confidence multiplier, that is, a positive feedback loop between real economic activity, consumer expectations of permanent income, and investor expectations of returns. This mechanism amplifies the business-cycle fluctuations triggered by demand shocks (but not necessarily those triggered by supply shocks); it helps investment to comove with consumption; and it allows front-loaded fiscal stimuli to crowd in private spending.