A reassessment of the global economic outlook and a heightened degree of uncertainty contributed to the significant fall in equity prices and increase in overall market volatility of the past few weeks.
But Keynes coined the term “animal spirits” to describe the emotional, non-purely logical state that influences our decision-making.1 With the unusual sequence of large drops and rebounds in capital markets in recent weeks,2 it is difficult to argue that fear and animal spirits were not also at play. Obviously, given that expectations determine the evolution of the economy, they matter for monetary policy.