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How does sluggish updating of information affect consumer spending?

Author

Listed:
  • Slacalek, Jiri
Abstract
Many economic models assume that households have up-to-date information. Here, we relax this assumption and see how that affects consumption at the household and aggregate level. To be specific, our model assumes that households only occasionally update their information about macroeconomic quantities. What’s unique about our model is that it can reconcile the very low persistence of consumption growth seen at the household level with it being substantially persistent at the aggregate level. In short, our model better fits micro and macro data. Concerning fiscal policy, our model can explain the fact that consumption reacts little to the announcement of a fiscal stimulus but substantially to the actual receipt of a stimulus payment. JEL Classification: D83, D84, E21, E32

Suggested Citation

  • Slacalek, Jiri, 2019. "How does sluggish updating of information affect consumer spending?," Research Bulletin, European Central Bank, vol. 65.
    • Handle: RePEc:ecb:ecbrbu:2019:0065:
    Note: 1111765
    as

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    References listed on IDEAS

    as
    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. Havranek, Tomas & Rusnak, Marek & Sokolova, Anna, 2017. "Habit formation in consumption: A meta-analysis," European Economic Review, Elsevier, vol. 95(C), pages 142-167.
    3. Jonathan A. Parker, 2017. "Why Don't Households Smooth Consumption? Evidence from a $25 Million Experiment," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 153-183, October.
    4. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumption; Expectations;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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