NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Edmund Crawley

Department of Economics
Johns Hopkins University

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NBER Working Papers and Publications

March 2018Sticky Expectations and Consumption Dynamics
with Christopher D. Carroll, Jiri Slacalek, Kiichi Tokuoka, Matthew N. White: w24377
Macroeconomic models often invoke consumption “habits” to explain the substantial persistence of aggregate consumption growth. But a large literature has found no evidence of habits in microeconomic datasets that measure the behavior of individual households. We show that the apparent conflict can be explained by a model in which consumers have accurate knowledge of their personal circumstances but ‘sticky expectations’ about the macroeconomy. In our model, the persistence of aggregate consumption growth reflects consumers’ imperfect attention to aggregate shocks. Our proposed degree of (macro) inattention has negligible utility costs, because aggregate shocks constitute only a tiny proportion of the uncertainty that consumers face.
July 2017Comment on "When Inequality Matters for Macro and Macro Matters for Inequality"
with Christopher D. Carroll
in NBER Macroeconomics Annual 2017, volume 32, Martin Eichenbaum and Jonathan A. Parker, editors
 
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