Sticky Expectations and Consumption Dynamics / Christopher D. Carroll, Edmund Crawley, Jiri Slacalek, Kiichi Tokuoka, Matthew N. White.

Format:

Book

Author/Creator:

Carroll, Christopher D.

Contributor:

National Bureau of Economic Research.

Crawley, Edmund.

Slacalek, Jiri.

Tokuoka, Kiichi.

White, Matthew N.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24377.

NBER working paper series no. w24377

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

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.

Notes:

Print version record

March 2018.