Human frictions in the transmission of economic policy

Francesco D'Acunto, Daniel Hoang, Maritta Paloviita and Michael Weber

No 12/2021, Bank of Finland Research Discussion Papers from Bank of Finland

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-cognitiveability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.

Keywords: Cognition; Behavioral Macroeconomics; Heterogeneous Agents; Fiscal and Monetary Policy; Beliefs; Redistribution; Inequality; Survey Data; Household Finance (search for similar items in EconPapers)
JEL-codes: D12 D84 D91 E21 E31 E32 E52 E65 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cbe and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Human Frictions to the Transmission of Economic Policy (2019)
Working Paper: Human frictions in the transmission of economic policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2021_012

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