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dc.contributor.authorAngeletos, George-Marios
dc.contributor.authorLian, Chen
dc.date.accessioned2022-08-25T17:20:07Z
dc.date.available2022-08-25T17:20:07Z
dc.date.issued2022
dc.identifier.urihttps://hdl.handle.net/1721.1/144443
dc.description.abstract<jats:title>Abstract</jats:title> <jats:p>We revisit the question of why shifts in aggregate demand drive business cycles. Our theory combines intertemporal substitution in production with rational confusion, or bounded rationality, in consumption and investment. The first element allows aggregate supply to respond to shifts in aggregate demand without nominal rigidity. The second introduces a “confidence multiplier,” that is, a positive feedback loop between real economic activity, consumer expectations of permanent income, and investor expectations of returns. This mechanism amplifies the business-cycle fluctuations triggered by demand shocks (but not necessarily those triggered by supply shocks); it helps investment to comove with consumption; and it allows front-loaded fiscal stimuli to crowd in private spending.</jats:p>en_US
dc.language.isoen
dc.publisherOxford University Press (OUP)en_US
dc.relation.isversionof10.1093/RESTUD/RDAB064en_US
dc.rightsCreative Commons Attribution-Noncommercial-Share Alikeen_US
dc.rights.urihttp://creativecommons.org/licenses/by-nc-sa/4.0/en_US
dc.sourceNBERen_US
dc.titleConfidence and the Propagation of Demand Shocksen_US
dc.typeArticleen_US
dc.identifier.citationAngeletos, George-Marios and Lian, Chen. 2022. "Confidence and the Propagation of Demand Shocks." Review of Economic Studies, 89 (3).
dc.contributor.departmentMassachusetts Institute of Technology. Department of Economics
dc.relation.journalReview of Economic Studiesen_US
dc.eprint.versionAuthor's final manuscripten_US
dc.type.urihttp://purl.org/eprint/type/JournalArticleen_US
eprint.statushttp://purl.org/eprint/status/PeerRevieweden_US
dc.date.updated2022-08-25T16:31:37Z
dspace.orderedauthorsAngeletos, G-M; Lian, Cen_US
dspace.date.submission2022-08-25T16:31:38Z
mit.journal.volume89en_US
mit.journal.issue3en_US
mit.licenseOPEN_ACCESS_POLICY
mit.metadata.statusAuthority Work and Publication Information Neededen_US


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