Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334608 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12252
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
The business cycle is driven by expectations - some justified, some not - as documented by a host of studies. What is less clear are the conditions that make the economy susceptible to "sentiment shocks." In this paper, we document that uncertainty, as measured by forecaster disagreement, is essential. At times when disagreement is low, sentiment shocks hardly matter for economic activity but are fully absorbed by prices. If, instead, disagreement is high, they move activity with little impact on prices. We obtain these results based on time-series data and a theoretical account based on a New Keynesian model with dispersed information.
Subjects: 
sentiment shocks
noise shocks
animal spirits
business cycles
nowcast error
disagreement
dispersed beliefs
JEL: 
C32
C34
D84
E21
E23
E32
Document Type: 
Working Paper
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