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"This paper provides new evidence in support of the idea that bouts of optimism and pessimism drive much of US business cycles. In particular, we begin by using sign-restriction based identification schemes to isolate innovations in optimism or pessimism and we document the extent to which such episodes explain macroeconomic fluctuations. We then examine the link between these identified mood shocks and subsequent developments in fundamentals using alternative identification schemes (i.e., variants of the maximum forecast error variance approach). We find that there is a very close link between the two, suggesting that agents' feelings of optimism and pessimism are at least partially rational as total factor productivity (TFP) is observed to rise 8-10 quarters after an initial bout of optimism. While this later finding is consistent with some previous findings in the news shock literature, we cannot rule out that such episodes reflect self-fulfilling beliefs. Overall, we argue that mood swings account for over 50% of business cycle fluctuations in hours and output"--National Bureau of Economic Research web site.
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Do mood swings drive business cycles and is it rational?
2011, National Bureau of Economic Research
Electronic resource
in English
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Title from PDF file as viewed on 2/14/2012.
Includes bibliographical references.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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- Created February 22, 2012
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October 17, 2020 | Edited by MARC Bot | import existing book |
July 29, 2012 | Edited by VacuumBot | Updated format '[electronic resource] /' to 'Electronic resource' |
February 22, 2012 | Created by LC Bot | Imported from Library of Congress MARC record |