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Sticky Expectations and Consumption Dynamics

Christopher Carroll, Edmund Crawley (), Jiri Slacalek (), Kiichi Tokuoka () and Matthew White ()

American Economic Journal: Macroeconomics, 2020, vol. 12, issue 3, 40-76

Abstract: To match aggregate consumption dynamics, macroeconomic models must generate "excess smoothness" in consumption expenditures. But microfounded models are calibrated to match micro data, which exhibit no "excess smoothness." So standard microfounded models fail to match the macro smoothness facts. We show that the micro and macro evidence are both consistent with a microfounded model where consumers know their personal circumstances but have "sticky expectations" about the macroeconomy. Aggregate consumption sluggishness reflects consumers' imperfect attention to aggregate shocks. Our proposed degree of inattention has negligible utility costs because aggregate shocks constitute a tiny proportion of the uncertainty that consumers face.

JEL-codes: D83 D84 E21 E23 E24 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Sticky expectations and consumption dynamics (2018) Downloads
Working Paper: Sticky Expectations and Consumption Dynamics (2018) Downloads
Working Paper: Sticky Expectations and Consumption Dynamics (2018) Downloads
Working Paper: Sticky Expectations and Consumption Dynamics (2006)
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DOI: 10.1257/mac.20180286

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