How Novelty and Narratives Drive the Stock Market

'Animal spirits' is a term that describes the instincts and emotions driving human behaviour in economic settings. In recent years, this concept has been discussed in relation to the emerging field of narrative economics. When unscheduled events hit the stock market, from corporate scandals and technological breakthroughs to recessions and pandemics, relationships driving returns change in unforeseeable ways. To deal with uncertainty, investors engage in narratives which simplify the complexity of real-time, non-routine change. This book assesses the novelty-narrative hypothesis for the U.S. stock market by conducting a comprehensive investigation of unscheduled events using big data textual analysis of financial news. This important contribution to the field of narrative economics finds that major macro events and associated narratives spill over into the churning stream of corporate novelty and sub-narratives, spawning different forms of unforeseeable stock market instability.

‘A great and difficult thing, and full of hazard’

Chapter 17, ‘A great and difficult thing, and full of hazard: the discourse of the soul’, provides an analysis of Pathologiæ cerebri (1667), Affectionum quæ dicuntur hystericæ et hypochondriacæ (1670) and De anima brutorum (1672). The chapter starts with Willis’s description of perverted activity of the particles in blood and the animal spirits which converts ordered movement into convulsion. The concept includes epilepsy and disorders of movement with preserved awareness, and extends to cough. An account is given of Willis’s concept of hysteria and hypochondriasis as organic brain disorders. His further work on comparative anatomy and animal behaviour as the basis for distinguishing the corporeal soul of brutes from the rational soul of man is described. The chapter provides an analysis of Willis’s writing on the human senses and passions followed by additional accounts of brain diseases and those affecting the mind, together representing a foundational work in psychiatry and behavioural neurology. {150 words}

Market sentiment and heterogeneous agents in an evolutive financial model

We study a financial market populated by heterogeneous agents, whose decisions are driven by “animal spirits”. Each agent may have either correct, optimistic or pessimistic beliefs about the fundamental value, which can change from time to time based on an evolutionary mechanism. The evolutionary selection of beliefs depends on a weighted evaluation of the general market sentiment perceived by the agents and on a profitability measure of the existent strategies. As the relevance given to the sentiment index increases, a herding phenomenon in agent behavior may occur and animal spirits can drive the market toward polarized economic regimes, which coexist and are characterized by persistent high or low levels of optimism and pessimism. This conduct is detectable from agents polarized shares and beliefs, which in turn influence the price level. Such polarized regimes can consist in stable steady states or can be characterized by endogenous dynamics, generating persistent alternating waves of optimism and pessimism, as well as return distributions displaying the typical features of financial time series, such as fat tails, excess volatility and multifractality. Moreover, we show that if the sentiment has no or low relevance on belief selection, those stylized facts are abated or are missing from the simulated time series.

Economic policy, environment and sustainable growth

Αυτή η διδακτορική διατριβή είναι μια περιβαλλοντική συμβολή στη μετακεϋνσιανή μακροοικονομική θεωρία. Η συμβολή σχετίζεται με τη σημασία της περιβαλλοντικής/οικολογικής διάστασης, η οποία, δεν έχει κεντρικό ρόλο στη μετακεϋνσιανή βιβλιογραφία. Αρχικά, στόχος μας ήταν να διερευνήσουμε πώς το περιβάλλον επηρεάζει την οικονομική δραστηριότητα και πώς το περιβάλλον θα μπορούσε να εισαχθεί στην ανάλυση της ενεργού ζήτησης και της οικονομικής ανάπτυξης. Η εισαγωγή του περιβαλλοντικού παράγοντα υπόκειται στις αρχές οικολογικής και βιοφυσικής προστασίας που υποδεικνύουν τη βιωσιμότητα του μοντέλου. Η εισαγωγή του περιβαλλοντικού στοιχείου υλοποιήθηκε μέσω της φυσικής προσέγγισης του κεφαλαίου. Ωστόσο, ο ακρογωνιαίος λίθος του θεωρητικού μοντέλου, είναι η δημιουργία μιας μεταβλητής που αντιπροσωπεύει το μερίδιο του πράσινου κεφαλαίου στη συνολική οικονομία, και την οποία χρησιμοποιήσαμε για να εκφράσουμε το βαθμό της χρησιμοποίησης του παραγωγικού δυναμικού ως συνάρτηση του μεριδίου του πράσινου κεφαλαίου. Από αυτή την άποψη, αποδείχθηκε ότι η μετάβαση σε μια βιώσιμη οικονομία είναι ευνοϊκή για τη συσσώρευση κεφαλαίου. Η οικονομετρική ανάλυση που διενεργήθηκε για τις 28 χώρες της Ευρωπαϊκής Ένωσης παρέχει στοιχεία που επικυρώνουν τις κύριες υποθέσεις μας και ειδικότερα ότι οι επενδύσεις και η συσσώρευση κεφαλαίων ευνοούνται από τη μετάβαση σε μια πιο πράσινη οικονομία. Προχωρήσαμε επίσης στη διερεύνηση της σημασίας της πράσινης κατανάλωσης για τη μετακεϋνσιανή μακροοικονομία. Αφού παρουσιάσαμε τα βασικά χαρακτηριστικά της κατανάλωσης και της βιώσιμης κατανάλωσης, εισήγαμε το περιβαλλοντικό στοιχείο σε ένα μετακεϋνσιανό μοντέλο κατανάλωσης. Από αυτή την άποψη, χρησιμοποιήσαμε την έννοια των πράσινων ζωικών πνευμάτων (green animal spirits), συνδυάζοντας την έννοια του Κέινς για τα animal spirits, τη μετακεϋνσιανή θεωρία της γνώσης και τη θεωρία λήψης αποφάσεων του καταναλωτή, όπως προσεγγίζεται από την επιστήμη της ψυχολογίας. Συμπληρωματικά και λόγω του αυξανόμενου ενδιαφέροντος για τη βιώσιμη κατανάλωση, καθώς και του αυξανόμενου ενδιαφέροντος και των διαθέσιμων δεδομένων για το οικολογικό αποτύπωμα, παρουσιάζεται επίσης ένα μοντέλο οικολογικού αποτυπώματος κατανάλωσης. Η οικονομετρική ανάλυση παρείχε στοιχεία που επικυρώνουν τις κύριες θεωρητικές μας υποθέσεις και ειδικότερα σχετικά με τη σημασία των πράσινων animal spirits για την περιβαλλοντικά φιλική κατανάλωση. Τόσο τα θεωρητικά όσο και τα εμπειρικά μοντέλα θεωρούνται ότι συνεισφέρουν σημαντικά σε μια πράσινη μετακεϋνσιανή θεωρία της ενεργούς ζήτησης. Τέλος, παρουσιάζεται μια ανάλυση πολιτικής οικονομίας σχετικά με τη αποτελεσματικότητα των περιβαλλοντικών πολιτικών στον καπιταλισμό.

DESCARTES and his project of a fantasized brain

ABSTRACT. Interest in anatomy dates from the earliest times. Such knowledge was acquired through dissections of animals and human corpses by many researchers. The macroscopic anatomy of the varied structures of the brain were identified over the centuries, and the predominating solid substance was seen as amorphous, and devoid of any specific function, until the Renaissance. René Descartes, a personage with a brilliant and creative mind, conceived the brain, its structure and function, in a distinct manner to what was known at his time. He valued the solid matter and gave it, for the first time, a theoretical minute structure, related to a presumptive function based on the presence of the pineal gland and the animal spirits, underlying cognitive, sensory and motor activities. Such structural view was endorsed, in a given sense, by the microscopic findings of Marcello Malpighi, which begun to change the understanding of the nervous system.

On Say’s Law, Keynes’s Money, and Post Keynesians

Say’s Law maintains that there can never be a superabundance of all goods (if any good were available in greater supply than needed, such as water or air, it would no longer be an economic good at all) and that if there is an excess of some items that are still goods, it will be matched with an insufficiency of others. The reputation of Keynes (1936) was made in part on the basis of a supposed refutation of Say’s Law. This paper attempts to probe the irrationality of Keynes’ position by examining his concept of money and its relationship to his theory. Key words: Say’s Law; Keynes; money; economic goods; animal spirits; unemployment. JEL Category: E12.

Print Email The Godley–Tobin memorial lecture

John Maynard Keynes's (1936) concept of ‘animal spirits’ or ‘spontaneous optimism’ as a major driving force in business fluctuations was motivated in part by his and his contemporaries' observations of human reactions to ambiguous situations where probabilities couldn't be quantified. We can add that in such ambiguous situations there is evidence that people let contagious popular narratives and the emotions they generate influence their economic decisions. These popular narratives are typically remote from factual bases, just contagious. Macroeconomic dynamic models must have a theory that is related to models of the transmission of disease in epidemiology. We need to take the contagion of narratives seriously in economic modeling if we are to improve our understanding of animal spirits and their impact on the economy.

CORONAVIRUS, LOCKDOWN, AND ECONOMY

Humanity has faced an unprecedented biological threat that collapsed the global economy and engulfed the animal spirits in a severe wave of pessimism and fear. The measures of policy have combined an expansive monetary policy and an extra fiscal expenditure that was not contemplated in the budgetary planning exercise. The recuperation stage is strongly challenging and requires all efforts of economic policy. The future global economic performance relies on the breaking policy postures that can succeed in realigning the path of growth in the long run. In any case, the destruction in the economic network and employment is so hard to restore that we must avoid the risk is to align the economy in a more stagnant path of growth for the future. The concluding part of the paper states that during the pandemic we saw that the way ahead should not be headed by the market mechanism but instead by an openly interventionist economic policy. In this blatantly ominous stage of the economy, serious doubts emerged about the ability of spontaneous supply and demand forces to recover the economic structure left in shambles by this disruptive shock.