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Consumer Behavior And Fluctuations In Economic Activity

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  • FRANK H. WESTERHOFF

    (University of Osnabrück, Department of Economics, Rolandstraße 8, D-49069 Osnabrück, Germany)

Abstract

We develop a simple Keynesian type business cycle model in which heterogeneous agents are either optimistic or pessimistic. If the majority of the agents are optimistic, then consumption expenditures are high and the economy booms, otherwise consumption expenditures are low and the economy is in a recession. Within our model, the sentiment of the agents is affected by their social interactions. For instance, people regularly meet each other and thus their mood may change. Overall, our model suggests that swings in consumer confidence may generate irregular fluctuations in economic activity.

Suggested Citation

  • Frank H. Westerhoff, 2005. "Consumer Behavior And Fluctuations In Economic Activity," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 8(02n03), pages 209-215.
    • Handle: RePEc:wsi:acsxxx:v:08:y:2005:i:02n03:n:s0219525905000452
    DOI: 10.1142/S0219525905000452
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    References listed on IDEAS

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    1. Karl Taylor & Robert McNabb, 2007. "Business Cycles and the Role of Confidence: Evidence for Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 185-208, April.
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    Cited by:

    1. Frank Westerhoff & Martin Hohnisch, 2010. "Consumer sentiment and countercyclical fiscal policies," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(5), pages 609-618.

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