⁷The empirical literature on the sluggishness of consumption starts with Flavin (1981) and Campbell and Deaton (1989). Recent research suggests that this stylized fact can be alternatively explained by habit formation (see, e.g., Fuhrer, 2000; Chetty and Szeidl, 2005; Sommer, 2007) or inattentiveness (see, e.g., Carroll and Slacalek, 2006; Reis, 2006 and Sims, 2003).