NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sentiments and Aggregate Demand Fluctuations

Jess Benhabib, Pengfei Wang, Yi Wen

NBER Working Paper No. 18413
Issued in September 2012
NBER Program(s):   EFG

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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This paper was revised on January 21, 2015

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Document Object Identifier (DOI): 10.3386/w18413

Published: 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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