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Human frictions in the transmission of economic policy

D‘Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael

Intertemporal substitution is at the heart of modern macroeconomics and finance as well as economic policymaking, but a large fraction of a representative population of men - those below the top of the distribution by cognitive abilities (IQ) - do not change their consumption propensities with their in ation expectations. Low-IQ men are also less than half as sensitive to interest-rate changes when making borrowing decisions. Our microdata include unique administrative information on cognitive abilities, as well as economic expectations, consumption and borrowing plans, and total household debt from Finland. Heterogeneity in observables such as education, income, other expectations, and financial constraints do not drive these patterns. Costly information acquisition and the ability to form accurate forecasts are channels that cannot fully explain these results. Limited cognitive abilities could be human frictions in the transmission and effectiveness of fiscal and monetary policies that operate through household consumption and borrowing decisions.

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Volltext §
DOI: 10.5445/IR/1000092484
Veröffentlicht am 21.03.2019
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht/Preprint
Publikationsjahr 2019
Sprache Englisch
Identifikator ISSN: 2190-9806
KITopen-ID: 1000092484
Verlag KIT, Karlsruhe
Umfang 41,2 S.
Serie Working paper series in economics ; 128
Schlagwörter Macroeconomic Beliefs, Limited Cognition, Heterogeneous Agents, Fiscal and Monetary Policy, Survey Data, Household Finance
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