Paper Human Frictions in the Transmission of Economic Policy

Most consumers below the median of the distribution by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate households’ consumption and borrowing, even when they earn high incomes and are financially unconstrained and conditional on formal education, economic expectations, and a broad set of registry-based demographics. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector. Such policies might unintendedly redistribute from low- to high-cognitive-ability agents. We discuss how our findings inform the microfoundation of behavioral macroeconomic theories.

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