Human Frictions in the Transmission of Economic Policy

60 Pages Posted: 31 Jan 2019 Last revised: 29 Sep 2021

See all articles by Francesco D'Acunto

Francesco D'Acunto

Georgetown University

Daniel Hoang

Karlsruhe Institute of Technology (KIT)

Maritta Paloviita

Bank of Finland - Research

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 27, 2021

Abstract

Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitive-ability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.

Keywords: Macroeconomic Beliefs, Limited Cognition, Heterogeneous Agents, Fiscal and Monetary Policy, Survey Data, Household Finance

JEL Classification: D12, D84, D91, E21, E31, E32, E52, E65

Suggested Citation

D'Acunto, Francesco and Hoang, Daniel and Paloviita, Maritta and Weber, Michael, Human Frictions in the Transmission of Economic Policy (September 27, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-07, Available at SSRN: https://ssrn.com/abstract=3326113 or http://dx.doi.org/10.2139/ssrn.3326113

Francesco D'Acunto

Georgetown University ( email )

Washington, DC 20057
United States

Daniel Hoang

Karlsruhe Institute of Technology (KIT) ( email )

Karlsruhe
Germany

Maritta Paloviita

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 9 1831 (Phone)
+358 9 1832560 (Fax)

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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