Explaining the Macroeconomic Inertia Puzzle
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摘要
Benchmark macroeconomic models require additional frictions to explain the sluggish response of aggregate variables to shocks. Cai shows that standard heterogeneous-agent (HA) models—the Blanchard (1985) perpetual youth and Bewley (1986) incomplete markets models—can replicate observed aggregate consumption inertia without habit formation or any specific expectation underreaction model. He achieves this by directly substituting survey expectations of income and interest rates into a semi-structural HA framework and by embedding an unobserved components model of expectations into a tractable HA equilibrium. Inertia arises when expectations imperfectly account for the equilibrium amplification of shocks, which is large in HA economies, causing beliefs to gradually unanchor as agents misattribute large equilibrium responses to larger shocks. The analysis also shows that inertial monetary policy rules and delayed fiscal financing induce longer transmission lags. Core mechanisms include a belief multiplier χ, the role of extrapolation biases in survey expectations, and the endogenous amplification of shocks through heterogeneous-agent dynamics. The paper provides a unified evaluation of impulse-response evidence and policy counterfactuals, highlighting when gradual policy worsens stabilization under learning frictions and how delayed deficits interact with expectation dynamics [page::0][page::1][page::2][page::3].
