How does sluggish updating of information affect consumer spending?

Jiri Slacalek

Research Bulletin, 2019, vol. 65

Abstract: Many economic models assume that households have up-to-date information. Here, we relax this assumption and see how that affects consumption at the household and aggregate level. To be specific, our model assumes that households only occasionally update their information about macroeconomic quantities. What’s unique about our model is that it can reconcile the very low persistence of consumption growth seen at the household level with it being substantially persistent at the aggregate level. In short, our model better fits micro and macro data. Concerning fiscal policy, our model can explain the fact that consumption reacts little to the announcement of a fiscal stimulus but substantially to the actual receipt of a stimulus payment. JEL Classification: D83, D84, E21, E32

Keywords: Consumption; Expectations (search for similar items in EconPapers)
Date: 2019-12
Note: 1111765
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