European Commission logo
English English
CORDIS - EU research results
CORDIS
Content archived on 2024-05-30

The macroeconomic effects of microeconomic inaction

Objective

A large part of macroeconomics embeds some form of inertial behavior by firms and/or house- holds. Whether it is in price or wage setting, real or financial investment choices, saving or consumption decisions, some element of stickiness leading to inaction ranges in individuals’ choices (in prices, consumption, investment) is often included to reconcile the model with observed individual data. Yet the specific assumptions to model this inertia mostly reflect tractability concerns, while less attention is paid to consistency with observations at the micro level. This issue is important for macroeconomics because different frictions, generating the same individual stickiness, imply different size and persistence in the response of the aggregate economy to macro shocks. Depending on modeling assumptions, the aggregate effects of stickiness range from being negligible to being substantial. We will propose methods so that the frictions will be structurally identified, and their consequences analytically explored.

This project has two broad goals. The first one is to construct tractable macroeconomic models, based on individual behavior, that will yield substantial improvements in matching the patterns on the infrequent and heterogeneous adjustment recently documented in the micro data. In our structural models the micro evidence will serve as an identification device for the proper modeling of the frictions faced by the agents. The second goal is to produce analytical tools to study the transmission of aggregate shocks (in money, interest rates, productivity, asset prices) in economies characterized by adjustment costs and cross-section heterogeneity. In particular, we will develop useful analytical methods to approximate the steady state behavior of an economy with stickiness, and to characterize the economy’s response to aggregate shocks.

Call for proposal

ERC-2012-ADG_20120411
See other projects for this call

Host institution

Istituto Einaudi per l'Economia e la Finanza
EU contribution
€ 1 946 788,00
Address
via sallustiana 62
00187 ROMA
Italy

See on map

Region
Centro (IT) Lazio Roma
Activity type
Research Organisations
Principal investigator
Francesco Lippi (Prof.)
Administrative Contact
Marco Pagano (Prof.)
Links
Total cost
No data

Beneficiaries (1)