Munich Personal RePEc Archive

A role for confidence: volition regimes and news

Saccal, Alessandro (2023): A role for confidence: volition regimes and news.

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Economic literature exhibits a variety of empirical structural impulse response function (SIRF) patterns in real consumption and real output due to changes in confidence or sentiment, with particular regard to the USA and the EA. This work replicates them in the orbit of a neo-Keynesian dynamic stochastic general equilibrium (NK-DSGE) model especially characterised by macroeconomic agents and derived from start to end. Confidence is specifically modelled as an endogenous variable characterised by a coalescence of three processes regulated by a degree of volition, the processes being permanent technology, transitory technology and noise technology. The first two processes affect real production technology with a delay of one lag, while the third does not at all. Short run responses to changes in confidence are displayed whenever the degree of volition allow confidence to shift real consumption and aggregate labour, thereby being non-negligible. Whenever the degree of volition were by contrast negligible exogenous shocks in noise technology would cause no fluctuations in real consumption and real output whatsoever.

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