What are the effects of beliefs, sentiment, and uncertainty, over the business cycle? To answer this question, we … develop a behavioral New Keynesian macroeconomic model, in which we relax the assumption of rational expectations. Agents are … variances to affect the economy. In forming expectations, agents may be subject to shifts in optimism and pessimism (sentiment …

expectations and document a strong negative relationship. However, the link is much weaker in bad times, since uncertainty is then … persistently high - even when expectations are favorable. I continue by investigating the relative importance of uncertainty and … expectations for corporate decisions. Exploiting information on firms' investment and labor reactions to the COVID-19 crisis, I do …