Waves Of Pessimism Research Articles

Sentimental Business Cycles

We use fatalities in mass shootings in the U.S. as an instrument for autonomous declines in consumer confi dence to estimate the dynamic causal effects of sentiment shocks. Declining confi dence is recessionary and sets off a severe contraction in the labor market, while having less evident nominal effects. Sentiment shocks explain a non-negligible part of cyclical fluctuations. We demonstrate that in a model with heterogeneous agents, nominal rigidities and search-and-matching frictions, a wave of pessimism can take the economy from a normal state on a path towards a high-unemployment sunspot limit, inducing dynamics that resemble the empirical patterns.

Robustness and Dynamic Sentiment

Errors in survey expectations display waves of pessimism and optimism and significant sluggishness. This paper develops a novel theoretical framework of time-varying beliefs capturing these empirical facts. In our model, the dynamic beliefs arise endogenously due to agents’ attitude toward alternative models. Decision-maker’s distorted beliefs generate countercyclical risk aversion, procyclical portfolio weights, countercyclical equilibrium asset returns, and excess volatility. A calibrated version of our model is shown to match salient features in equity markets.

Coronavirus and the Future of Globalization

Coronavirus Pandemic has generated a discussion regarding the future of globalization. This article places this new wave of pessimism regarding the future of globalization in the broader tension surrounding globalization that has existed in international relations discourse since the end of the Cold War. The article points out some of the previous challenges endured by globalization. It also points out that whereas at this point popular media and news commentary portray pessimism as the dominant feeling, the trend towards multilateralism and global cooperation is also discernable in other responses to the pandemic.

What were they thinking? Firms' expectations since the financial crisis

PurposeThis paper explores how firms formed their expectations about the availability of bank finance since the financial crisis. Various expectations hypotheses that incorporate backward and/or forward-looking elements and inattention are tested. From a policy perspective, the most important hypothesis is whether policy announcements have a direct impact on the expectations of companies.Design/methodology/approachThe analysis is based on a large sample of euro area companies from the ECB “Survey on the Access to Finance of Enterprises” between 2009 and 2018. Ordered logit models are used to relate individual replies on expectations to firms' information available at the time of the forecasts. The model controls for the business cycle and firms' structural characteristics. Using a difference-in-differences approach, we test how policy announcements may affect expectations.FindingsFirms update what otherwise look like adaptive expectations on the basis of new information. The hypothesis of rational expectations is rejected. Moreover, we do not find evidence of inattention or of a wave of pessimism/optimism. The analysis of expectations around the time of the ECB Outright Monetary Transactions program provides some evidence of forward-looking expectations.Originality/valueThe paper contributes to the literature on expectations by using a novel survey in eleven countries. In the multi-country setting, country-specific business cycle effects and waves of pessimism or optimism are better controlled for. The policy announcements of summer 2012 provide for a natural experiment to test the direct impact of such announcements on expectations, an issue of relevance for the monetary policy transmission to economic activity.

Sentimental Business Cycles

We use fatalities in mass shootings in the U.S. as an instrument for autonomous declines in consumer confi dence to estimate the dynamic causal effects of sentiment shocks. Declining confi dence is recessionary and sets off a severe contraction in the labor market, while having less evident nominal effects. Sentiment shocks explain a non-negligible part of cyclical fluctuations. We demonstrate that in a model with heterogeneous agents, nominal rigidities and search-and-matching frictions, a wave of pessimism can take the economy from a normal state on a path towards a high-unemployment sunspot limit, inducing dynamics that resemble the empirical patterns.

Inflation Targets and the Zero Lower Bound in a Behavioural Macroeconomic Model

We analyse the relationship between the level of the inflation target and the zero lower bound imposed on the nominal interest rate in the framework of a behavioural New‐Keynesian macroeconomic model in which agents, experiencing cognitive limitations, use adaptive learning forecasting rules. The model produces endogenous waves of optimism and pessimism (animal spirits) that lead to non‐normal distributions of the output gap. We find that when the inflation target is too close to zero, the economy can get gripped by ‘chronic pessimism’ that leads to a dominance of negative output gaps and recessions, and in turn feeds back on expectations producing long waves of pessimism. Low inflation targets create the risk of persistence of recessions and low growth. In conclusion, our framework suggests that the 2% inflation target, now pursued by many central banks, is too low.

Bad news in the Great Depression, the Great Recession, and other U.S. recessions: A comparative study

In economic recessions consumption usually drops in tandem with other aggregate quantities as output or employment. Following the permanent income hypothesis, these drops can be rationalized by the idea that consumers have pessimistic views about their long-run income. Using a standard signal-extraction model, we show that this pessimism can be due either to a persistent fall of aggregate productivity before and during the recession (signaling a future decline of income), or to other negative information unrelated to contemporaneous fundamentals, which we label “bad news”. We classify U.S. recessions (from 1919 to 2015) according to a (bad) news index reflecting this negative information. We find that both the Great Depression and the Great Recession score highest in this index. The index is such that we can rule out that this is due merely to the length or the depth of these recessions. Instead, these two recessions are similar in that both were aggravated by a wave of pessimism about future income which cannot be related to contemporaneous fundamentals.

Time, Development, Africa

The current wave of pessimism about the future of tropical Africa is contested, on the basis that Euro/American temporal expectations are inappropriate in the African context. An approach to Africa in the light of large cycles of historical time seems to offer a useful foundation for western expectations and a western plan of action. Well-intended western efforts to assist in development (economically in general, regarding librarianship in particular) may not have been greatly successful because they have disregarded principles, such as those elucidated by Arnold Toynbee, about the way civilizations grow and how much time they need for the process of becoming ‘modem’. It is suggested that Sub-Saharan Africa is engaged now in the essential step of building its middle class, after which (approximately at the beginning of the next century) it will exhibit a demand for means of growth in that class as well as means to sustain upward movement in the poorest class. Those processes, inherent in the emergence of successful societies, will generate the need for information, education and libraries.

The Postwar Economic System in Germany: Creation, Evolution and Reappraisal

A wave of pessimism regarding current economic conditions appears to have afflicted many parts of the world. Such pessimism manifests itself in skepticism regarding market type economic systems and democratic forms of government in general. In other words, the extent of government involvement in the functioning of the economy seems to be a major issue.

All's Well

THERE is in our opinion no justification for the wave of pessimism about the immediate prospects of the British Aircraft Industry that undoubtedly swept over the country a few months ago. This was engendered by the cuts that were exercised in the Air Estimates in regard to certain types of aircraft, involving the cancellation of orders to some firms. Followed as this was by the appearance over here of a number of American bomber squadrons it was not perhaps surprising that the feeling developed that the axe was about to fall more widely. The view spread that we were going to hand over to the United States the provision of heavy bombers, with serious results for a larger number of firms in the British industry.

The wave of pessimism in the Shakspearian Drama

The wave of pessimism in the Shakspearian Drama