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Michael BENZAQUEN (Polytechnique) “Confidence collapse in a multi-household, self-reflexive DSGE model”

March 14 @ 12:15 pm - 1:30 pm

The Macroeconomics Seminar:
Time: 12:15 pm – 13:30 pm
Date: 14th of March 2022

Room 3001 + Zoom

 Room 

Michael BENZAQUEN (Polytechnique) “Confidence collapse in a multi-household, self-reflexive DSGE model”

Abstract : Despite their inability to cope with the global financial crisis, dynamic stochastic general equilibrium (DSGE) models are still at the forefront of monetary policy. Like many standard economic models, DSGE models rely on the figment of representative agents, abolishing the possibility of genuine collective effects (such as the 2008 crisis) induced by heterogeneities and interactions. By allowing feedback of past aggregate consumption on the sentiment of individual households, we construct more realistic DSGE models that allow for large output swings induced by relatively minor variations in economic conditions and amplified by interactions. Our framework elicits the de facto impossibility to price extreme risks and highlights the importance of narratives, as an efficient depression-prevention policy tool whenever confidence collapse is looming.

Organizers:
Jean-Baptiste MICHAU (CREST-Polytechnique)

Sponsors:
CREST