behavioral explanations of the business cycle

Expectation Shocks and Learning as Drivers of the Business Cycle

JEL codes: 
E31, E32, E52, E58
Version Date: 
Mar 2010

Psychological factors, market sentiments, and shifts in beliefs are believed by many to play a nontrivial role in inducing and amplifying economic fluctuations. Yet, these forces are rarely considered in macroeconomic models. This paper provides an attempt to evaluate the empirical role of expectational shocks on business cycle fluctuations.

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