Did CNBC Contribute to the Great Moderation or the Great Recession?

Abstract

We construct a multi-agent system (MAS) model of cyclical growth in which aggregate fluctuations result from variations in activity at firm level. The latter, in turn, result from changes in the state of long run expectations (SOLE) or “animal spirits” and their effect on firms’ investment behaviour. We focus on the impact of a common source of information – analogous to the mass media – on the amplitude of aggregate fluctuations. Our results suggest that the amplitude of growth cycles is reduced by extremes of attention or inattention to aggregate economic performance, but that this relationship is subject to complicated (and possibly complex) phase transitions.

Keywords: Aggregate fluctuations, animal spirits, cyclical growth, multi-agent system, sentiment

JEL Classification: C63, E12, E32, E37, O41