Corporate Finance, DeFi, Blockchain, Web3 News
Corporate Finance, DeFi, Blockchain News

FY360° | Confidence, aggregate demand, and the business cycle: A new framework

The Global Crisis has forced a revaluation of the standard macroeconomic models in use worldwide.


This column discusses an enrichment that include a formal concept of ‘confidence’ about the short-medium term economic outlook – one that relates to market psychology rather than expectations about technology and policy. This extension helps the model predictions better match reality. It also offers a formalisation of the popular view that depressed spending, arising from a drop in confidence, is a major cause of recessions and that recoveries often hinge on ‘restoring confidence in the economy’.

Macroeconomic activity and economic confidence seem closely linked. Figure 1 shows the relationship between the cyclical component of GDP and a popular measure of economic confidence, the University of Michigan Consumer Sentiment Index. There has not been a single instance of a recession during this period that has not been preceded-accompanied by a significant deterioration in confidence...

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Jeudi 19 Mars 2015




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