| The impact of the financial crisis happened in2008continues to spread and deepen, at thesame time, the macroeconomic model developed for forecasting the financial crisis is stillhelpless.In contradiction with the fact that the outbreak of the financial crisis happened more andmore frequently, macroeconomic model based on the traditional rational expectations theory is tooabstract and simple, which abandoned all the uncertainty in the economy and the behavior ofpeople’s emotions completely. The study on public confidence almost disappeared from the fieldof economics research as the theory of rational expectations abandoned all the publicpsychological and emotional issues that may cause the market imbalances. However, affected byfrequently financial crisis prediction failure, the question of the rational expectations theory is tooidealistic arises. Economists have once again set their sights on public confidence and publicsentiment as a new way to study the financial crisis, hence the concept of public confidence isre-entering the field of economics research.This paper consists of five parts as follows:1. Firstly, we make a specific definition about public confidence in the economic. As thedefinition, we can find that public confidence is composed by two facts: the reflection ofeconomic and the expectation of future. The self-actualized characteristic of public confidence isable to affect the macroeconomic volatility via the transmission mechanism. The mechanism ofpublic confidence in the macroeconomic is consisting of self-actualized characteristic andconfidence conduction mechanisms.2. By using the SVAR model, we decompose the consumer confidence and the entrepreneurconfidence into forming factors and calculate the degree of influence effectively. We find thatinterest rate and confidence shock impact on consumer confidence quickly in the short term, whilesupply shocks’ and demand shocks’ influences increase in the long term. Consumers can onlyobserve some economic variables which have a significant influence on consumer behavior in theshort term, and for entrepreneurs, they are more concerned about the supply and demand changes in the market, therefore the influence of some short-term policy changes or unexpected events forentrepreneurs’ confidence is relatively small.3. The results show that consumer confidence has no significant effect on macroeconomicfluctuations, but macroeconomic fluctuations can be caused by the entrepreneur confidencevariables significantly. According to the TVAR model, the confidence of entrepreneurs hasnon-linear characteristics in different stages of the economic cycle. During the boom years, theimpact of public confidence on economic is double in quantity than the impact in the recessionphase, due to the fact that the optimism of entrepreneurs can promote the economic growth duringthe economic prosperity, yet it will have a negative impact in the recession phase.4. DSGE model’s results show that public confidence has a significant impact on theinvestment decision-making behavior, and the change of public confidence is also influenced bymacroeconomic volatility and investment yield. The results confirm that the mechanism of publicconfidence in the economic exists actually. Impulse response function analysis shows thatinvestors will increase investment when they have confidence in the future, which will promotemacro-economic prosperity and cause an increase in output and employment. When the investors ’investment enthusiasm fade, the output will return to new economic equilibrium point.5. We use the simulation method to analyze public confidence in DSGE model. The resultshows that government macro-economic policies should be implemented based on the principle ofdiscretionary choice, according to the type of emotional shock. In addition, the governmentshould implement credible threat strategies to investors to solve the problem of over-investmentand to reduce its bad influence. |
