Sentiments and Aggregate Demand Fluctuations
We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made under imperfect information about demand, optimal decisions based on sentiments can generate stochastic self-fulfilling rational expectations equilibria in standard economies without persistent informational frictions, externalities, non-convexities or strategic complementarities in production. The models we consider are deliberately simple, but could serve as benchmarks for more complicated equilibrium models with additional features.
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Copy CitationJess Benhabib, Pengfei Wang, and Yi Wen, "Sentiments and Aggregate Demand Fluctuations," NBER Working Paper 18413 (2012), https://doi.org/10.3386/w18413.Download Citation
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Published Versions
Jess Benhabib & Pengfei Wang & Yi Wen, 2015. "Sentiments and Aggregate Demand Fluctuations," Econometrica, Econometric Society, vol. 83, pages 549-585, 03. citation courtesy of 
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