Different compositions of aggregate sentiment and their impact on macroeconomic stability |
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| Institution: | 1. University of Kiel, Germany;2. University of Bamberg, Germany;1. IPAG Business School, 184 boulevard Saint-Germain, 75006 Paris, France;2. Department of Economics, Ecole Polytechnique, Paris, France;3. CREA, Université du Luxembourg, 162A avenue de la Faïencerie, L-1511 Luxembourg, Luxembourg;1. Department of Economics and Finance, La Trobe University, Melbourne, Australia;2. Department of Economics, Macquarie University, Sydney, Australia;1. Department of Economics, Kiel University, Olshausenstrasse 40, 24118 Kiel, Germany;2. Graduate School of International Studies, Korea University, 5-1 Anam-Dong, Seongbuk-Gu, Seoul 136-701, Republic of Korea;3. Kiel Institute for the World Economy, Kiellinie 66, 24105 Kiel, Germany;1. Research School of Management, Australian National University, Canberra, Australia;2. Dept. of Humanities and Social Sciences, Indian Institute of Technology, Madras, Chennai, India |
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| Abstract: | In recent times a number of agent-based models have been put forward that specify an aggregate sentiment as the difference between optimists and pessimists and let the agents endogenously switch between the two attitudes. The present paper extends this stylized framework by adding a third category, which may be viewed as neutrality. On this basis it then formulates a dynamic three-dimensional Goodwinian model with a special focus on multiple long-run equilibrium positions, which may emerge from just one and very natural nonlinearity in the switching process. The equilibria exhibit the same difference between optimists and pessimists and thus give rise to the same aggregate rate of growth, so that they cannot be distinguished at the macroeconomic level. The feature in which they nevertheless differ is the share of neutral agents. Remarkably, this affects stability. In particular, the trajectories may converge to one of two locally stable equilibrium points, or alternatively to a uniquely determined limit cycle. Coexistence of these attractors is absent in a two-state sentiment dynamics. Generally, the results may also be of interest to empirical business cycle research. |
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| Keywords: | Agent-based modelling Three-state sentiment dynamics Herding Multiple attractors Goodwin cycles C13 E12 E30 |
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