Nber Working Paper Series Sentiments , Financial Markets , and Macroeconomic Fluctuations

Content Provider	Semantic Scholar
Author	Benhabib, Jess Liu, Xuewen Peng-Fei
Copyright Year	2015
Abstract	This paper studies how financial information frictions can generate sentiment-driven fluctuations in asset prices and self-fulfilling business cycles. In our model economy, exuberant financial market sentiments of high output and high demand for capital increase the price of capital, which signals strong fundamentals of the economy to the real side and consequently leads to an actual boom in real output and employment. The model further derives implications for asymmetric non-linear asset prices and for economic contagion and co-movement across countries. In the extension to the dynamic OLG setting, our model demonstrates that sentiment shocks can generate persistent output, employment and business cycle fluctuations, and offers some new implications for asset prices over business cycles. Jess Benhabib Department of Economics New York University 19 West 4th Street, 6th Floor New York, NY 10012 and NBER jess.benhabib@nyu.edu Xuewen Liu Deaprtment of Finance, Hong Kong University of Science and Technology Clear Water Bay, Kowloon Hong Kong xuewenliu@ust.hk Pengfei Wang Department of Economics Business School Hong Kong University of Science and Technology pfwang@ust.hk
File Format	PDF HTM / HTML
Alternate Webpage(s)	https://www.nber.org/papers/w21294.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article