Behavioral Theories of the Business CycleNir Jaimovich, Sergio Rebelo
NBER Working Paper No. 12570 We explore the business cycle implications of expectation shocks and of two well-known psychological biases, optimism and overconfidence. The expectations of optimistic agents are biased toward good outcomes, while overconfident agents overestimate the precision of the signals that they receive. Both expectation shocks and overconfidence can increase business-cycle volatility, while preserving the model's properties in terms of comovement, and relative volatilities. In contrast, optimism is not a useful source of volatility in our model.
Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w12570 Published: Nir Jaimovich & Sergio Rebelo, 2007. "Behavioral Theories of the Business Cycle," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 361-368, 04-05. citation courtesy of Users who downloaded this paper also downloaded* these:
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