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Article Dans Une Revue Proceedings of the National Academy of Sciences of the United States of America Année : 2020

Confidence Collapse in a Multi-Household, Self-Reflexive DSGE Model

Résumé

We investigate a multi-household DSGE model in which past aggregate consumption impacts the confidence, and therefore consumption propensity, of individual households. We find that such a minimal setup is extremely rich, and leads to a variety of realistic output dynamics: high output with no crises; high output with increased volatility and deep, short lived recessions; alternation of high and low output states where relatively mild drop in economic conditions can lead to a temporary confidence collapse and steep decline in economic activity. The crisis probability depends exponentially on the parameters of the model, which means that markets cannot efficiently price the associated risk premium. We conclude by stressing that within our framework, narratives become an important monetary policy tool, that can help steering the economy back on track.
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Dates et versions

hal-02323098 , version 1 (21-10-2019)

Identifiants

  • HAL Id : hal-02323098 , version 1

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Federico Morelli, Michael Benzaquen, Marco Tarzia, Jean-Philippe Bouchaud. Confidence Collapse in a Multi-Household, Self-Reflexive DSGE Model. Proceedings of the National Academy of Sciences of the United States of America, 2020. ⟨hal-02323098⟩
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