How to Turn a Recession into a Depression: The Role of the Media, of the Politicians, and of the Political Analysts

Dimitris Hatzinikolaou

MPRA Paper from University Library of Munich, Germany

Abstract: By modifying slightly a standard neoclassical-synthesis macroeconomic model, this paper investigates the effects of an adverse supply or demand shock on output, employment, investment, prices, interest rates, and the exchange rate. The paper focuses on the possibility of the magnification of these effects by the media, the politicians, and the political analysts, who induce herd-behavior by overstating the size of the shock. I find that such behavior destabilizes the economy by magnifying the amplitude of the business cycle and by hurting private investment, which might cause expansions to be shorter and contractions to last longer.

Keywords: Media; Newsmakers; Spin; Business Cycle; Herd Behavior; Neoclassical Synthesis (search for similar items in EconPapers)
JEL-codes: E02 E32 (search for similar items in EconPapers)
Date: 2010-03-31, Revised 2010-09-15
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Published in Modern Economy November.1(2010): pp. 144-148

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