cAndCwithStickyE-abstract.metadata

      To match aggregate consumption dynamics, macroeconomic models must generate `excess smoothness' in consumption expenditures.   But microfounded models are calibrated to match micro data, which exhibit no `excess smoothness.' So standard microfounded models fail to match the macro smoothness facts.  We show that the micro and macro evidence are both consistent with a microfounded model where consumers know their personal circumstances but have `sticky expectations' about the macroeconomy.  Aggregate consumption sluggishness reflects consumers' imperfect attention to aggregate shocks. Our proposed degree of inattention has negligible utility costs because aggregate shocks constitute a tiny proportion of the uncertainty that consumers face.% R2 - contribution