  This paper suggests that business cycles may be a manifestation of coupled
real economy and stock market dynamics and describes a mechanism that can
generate economic fluctuations consistent with observed business cycles. To
this end, we seek to incorporate into the macroeconomic framework a dynamic
stock market model based on opinion interactions (Gusev et al., 2015). We
derive this model from microfoundations, provide its empirical verification,
demonstrate that it contains the efficient market as a particular regime and
establish a link through which macroeconomic models can be attached for the
study of real economy and stock market interaction. To examine key effects, we
link it with a simple macroeconomic model (Blanchard, 1981). The coupled system
generates nontrivial endogenous dynamics, which exhibit deterministic and
stochastic features, producing quasiperiodic fluctuations (business cycles). We
also inspect this system's behavior in the phase space. The real economy and
the stock market coevolve dynamically along the path governed by a
stochastically-forced dynamical system with two stable equilibria, one where
the economy expands and the other where it contracts, resulting in business
cycles identified as the coherence resonance phenomenon. Thus, the
incorporation of stock market dynamics into the macroeconomic framework, as
presented here, allows the derivation of realistic behaviors in a tractable
setting.
