NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Sticky Expectations and Consumption Dynamics

Christopher D. Carroll, Edmund Crawley, Jiri Slacalek, Kiichi Tokuoka, Matthew N. White

NBER Working Paper No. 24377
Issued in March 2018
NBER Program(s):Economic Fluctuations and Growth Program, The Monetary Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w24377

 
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