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Communication Frictions, Sentiments, and Nonlinear Business Cycles

Author

Listed:
  • Libo Xu

    (University of Calgary)

  • Apostolos Serletis

    (University of Calgary)

Abstract
In the context of a rational expectations macroeconomic model with communication frictions, we show that the level of economic activity is a nonlinear and time‐varying function of aggregate economic fundamentals and sentiment shocks. In particular, because of communication frictions, it is possible for small changes in sentiment shocks to cause large changes in aggregate output, and, similarly, for large changes in sentiment shocks to cause small changes in aggregate output. We also find that communication frictions have nonlinear effects on the variance of aggregate output, meaning that improving the communication does not always reduce the variance of aggregate output.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Libo Xu & Apostolos Serletis, "undated". "Communication Frictions, Sentiments, and Nonlinear Business Cycles," Working Papers 2016-35, Department of Economics, University of Calgary, revised 20 Jun 2016.
    • Handle: RePEc:clg:wpaper:2016-35
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