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Sticky Expectations and Consumption Dynamics

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

No 24377, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D83 D84 E21 E32 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-mac and nep-upt
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, vol 12(3), pages 40-76.

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Journal Article: Sticky Expectations and Consumption Dynamics (2020) 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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