An agent-based macroeconomic model with interacting firms, socio-economic opinion formation and optimistic/pessimistic sales expectations

Abstract

We propose a simple agent-based macroeconomic model in which firms hold heterogeneous sales expectations. A firm may either optimistically expect an increase in its sales or pessimistically expect the opposite. Whether a given firm is optimistic or pessimistic depends on macroeconomic conditions and the average mood prevailing within its social/local neighborhood. For instance, the probability of a firm taking an optimistic view increases not only during a boom but also with the number of its optimistic neighbors. We show that such an economy may give rise to co-evolving dynamics between the business cycle and the firms’ average sentiment.