Human frictions in the transmission of economic policy

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Title: Human frictions in the transmission of economic policy
Author: D’Acunto, Francesco ; Hoang, Daniel ; Paloviita, Maritta ; Weber, Michael
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
Series number: 12/2021
Year of publication: 2021
Publication date: 9.9.2021
Pages: 61
Subject (yso): rahapolitiikka; finanssipolitiikka; uskomukset; kotitaloudet (organisaatiot); kulutus; käyttäytyminen; kognitio
JEL: D12; D84; D91; E21; E31; E32; E52; E65
Other keywords: Cognition; Behavioral Macroeconomics; Heterogeneous Agents; Fiscal Policy; Monetary Policy; Beliefs; Redistribution; Inequality; Survey Data; Household Finance
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-cognitive ability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.

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