Business Confidence and Macroeconomic Dynamics

August 1, 2014

This paper investigates the role of the state of confidence for the macroeconomic dynamics of two interacting economies using the opinion dynamics approach.

Particularly, the overall state of confidence in the world (two-country) economy plays not only for the dynamics of the nominal exchange rate but also for the dynamics of the real economy through the determination of aggregate investment. This novel feature allows us to consider far richer international macroeconomic interactions than most standard models. The resulting framework is both advanced as well as flexible enough to generate various types of persistent fluctuations, and also complex dynamics.

Author: Matthieu Charpe, Carl Chiarella, Peter Flaschel, Christian R. Proaño
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