Human Frictions in the Transmission of Economic Policy
58 Pages Posted: 12 Sep 2019 Last revised: 21 Jul 2022
Date Written: July 20, 2022
Most consumers below the median of the distribution by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate households’ consumption and borrowing, even when they earn high incomes and are financially unconstrained and conditional on formal education, economic expectations, and a broad set of registry-based demographics. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector. Such policies might unintendedly redistribute from low- to high-cognitive-ability agents. We discuss how our findings inform the microfoundation of behavioral macroeconomic theories.
Keywords: Cognition, Behavioral Macroeconomics, Heterogeneous Agents, Fiscal and Monetary Policy, Beliefs, Redistribution, Inequality, Survey Data, Household Finance.
JEL Classification: D12, D84, D91, E21, E31, E32, E52, E65
Suggested Citation: Suggested Citation