Researcher models business cycle using ‘animal spirits’
San Francisco Fed paper incorporates ‘equity sentiment shock’ into model
A working paper from the Federal Reserve Bank of San Francisco tries to incorporate human sentiment into the modelling of real business cycles.
In Real business cycles, animal spirits and stock market valuation, Kevin Lansing uses the Keynesian notion of “animal spirits” to better explain fluctuations in consumer sentiment. This means including a measure of an agent’s subjective expectations. The author includes an “equity sentiment shock” alongside five more typical shock types in a real
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