A note on interactions-driven business cycles |
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Authors: | Frank Westerhoff Martin Hohnisch |
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Institution: | 1. Department of Economics, University of Osnabrueck, Rolandstrasse 8, 49069, Osnabrueck, Germany 2. Experimental Economics Laboratory and Research Group Hildenbrand, Department of Economics, University of Bonn, Adenauerallee 24-42, 53113, Bonn, Germany
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Abstract: | Within the standard Keynesian multiplier framework, extended by a micro-model of interactive formation of individual consumption
propensities, we demonstrate that socioeconomic interactions can lead to cyclical fluctuations in aggregate economic activity.
The underlying micro-model of direct interactions is a version of Alan Kirman’s generic opinion formation model, with an additional
feedback effect from macroscopic variables on the transition probabilities. Our model engenders cyclical fluctuations of economic
variables, despite the fact that neither the Keynesian multiplier model nor Kirman’s model does so on its own. |
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