Human Frictions in the Transmission of Economic Policy

58 Pages Posted: 12 Sep 2019 Last revised: 21 Jul 2022

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: July 20, 2022

Abstract

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

D'Acunto, Francesco and Hoang, Daniel and Paloviita, Maritta and Weber, Michael, Human Frictions in the Transmission of Economic Policy (July 20, 2022). Chicago Booth Research Paper No. 19-21, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=3451495 or http://dx.doi.org/10.2139/ssrn.3451495

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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