Sticky Expectations and Consumption Dynamics

61 Pages Posted: 6 Mar 2018

See all articles by Christopher D. Carroll

Christopher D. Carroll

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)

Edmund Crawley

Board of Governors of the Federal Reserve System

Jiri Slacalek

European Central Bank (ECB)

Kiichi Tokuoka

Ministry of Finance - Japan

Matthew N. White

University of Delaware - Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

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.

Suggested Citation

Carroll, Christopher D. and Crawley, Edmund and Slacalek, Jiri and Tokuoka, Kiichi and White, Matthew N., Sticky Expectations and Consumption Dynamics (March 2018). NBER Working Paper No. w24377, Available at SSRN: https://ssrn.com/abstract=3134274

Christopher D. Carroll (Contact Author)

Johns Hopkins University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Edmund Crawley

Board of Governors of the Federal Reserve System ( email )

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Jiri Slacalek

European Central Bank (ECB) ( email )

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Germany

Kiichi Tokuoka

Ministry of Finance - Japan ( email )

3-1-1 Kasumigaseki
Chiyoda-ku
Tokyo, 100-8940
Japan

Matthew N. White

University of Delaware - Economics ( email )

Newark, DE 19716
United States

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