{"title":"Household Consumption and Dispersed Information","authors":"","doi":"10.1016/j.jmoneco.2024.103592","DOIUrl":null,"url":null,"abstract":"<div><p>By introducing an information friction to a heterogeneous agent model, we are able to explain two patterns of small economies experiencing large income changes: (1) excess volatility in consumption and (2) household consumption elasticities that have low correlation with income. With a standard dispersed information structure, households cannot distinguish aggregate income shocks from idiosyncratic ones. Their consumption responds excessively to aggregate shocks, which they incorrectly forecast to be too persistent. This effect occurs homogeneously across the income distribution, lowering the correlation of the consumption elasticity with income. We corroborate our central mechanism using survey data on household expectations of their future earnings.</p></div>","PeriodicalId":48407,"journal":{"name":"Journal of Monetary Economics","volume":null,"pages":null},"PeriodicalIF":4.3000,"publicationDate":"2024-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Monetary Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S030439322400045X","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
By introducing an information friction to a heterogeneous agent model, we are able to explain two patterns of small economies experiencing large income changes: (1) excess volatility in consumption and (2) household consumption elasticities that have low correlation with income. With a standard dispersed information structure, households cannot distinguish aggregate income shocks from idiosyncratic ones. Their consumption responds excessively to aggregate shocks, which they incorrectly forecast to be too persistent. This effect occurs homogeneously across the income distribution, lowering the correlation of the consumption elasticity with income. We corroborate our central mechanism using survey data on household expectations of their future earnings.
期刊介绍：
The profession has witnessed over the past twenty years a remarkable expansion of research activities bearing on problems in the broader field of monetary economics. The strong interest in monetary analysis has been increasingly matched in recent years by the growing attention to the working and structure of financial institutions. The role of various institutional arrangements, the consequences of specific changes in banking structure and the welfare aspects of structural policies have attracted an increasing interest in the profession. There has also been a growing attention to the operation of credit markets and to various aspects in the behavior of rates of return on assets. The Journal of Monetary Economics provides a specialized forum for the publication of this research.
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