Consumption Dynamics under Information Frictions

I develop a theory that replicates macroeconomic evidence on lagged consumption responses as well as microeconomic evidence on high marginal propensities to consume. Previous literature has mostly accomplished this with behavioral models or other departures from rational expectations frameworks. Instead, this paper employs an information friction. I show that, even in the absence of nominal rigidities, this setup generates a hump-shaped consumption response in line with macroeconomic evidence.

Draft available upon Request.