Angeletos, Collard, and Dellas serve up another important entry (NBER gate) in the growing literature on the importance of the risk premium for macroeconomic fluctuations:
We enrich workhorse macroeconomic models with a mechanism that proxies strategic uncertainty and that manifests itself as waves of optimism and pessimism about the short-term economic outlook. We interpret this mechanism as variation in confidence and show that it helps account for many salient features of the data; it drives a significant fraction of the volatility in estimated models that allow for multiple structural shocks; it captures a type of fluctuations in aggregate demand that does not rest on nominal rigidities; and it calls into question existing interpretations of the observed recessions. We complement these findings with evidence that most of the business cycle in the data is captured by an empirical factor which is unlike certain structural forces that are popular in the literature but similar to the one we formalize here.
There are ungated versions here. The funny thing is, these theories are in some key regards more true to the spirit of John Maynard Keynes than many theories which are called “Keynesian.”