March 28, 2025, Filed Under: Working PaperAttention to the Macroeconomy EMPCT Working Paper Series No. 2025-0374 pages | PDF Download | PDF in Browser Citation:Link, Sebastian, Peichl, Andreas, Pfauti, Oliver, Roth, Christopher, Wohlfart, Johannes, “Attention to the Macroeconomy”, March 2025 Sebastian Linkifo Institute – Leibniz Institute for Economic Research at the University of Munich Andreas Peichl ifo Center for Macroeconomics and Surveys Oliver PfäutiThe University of Texas at Austin Christopher RothUniversity of Cologne Johannes WohlfartUniversity of Cologne AbstractWe collect novel measures of households’ and firms’ attention to the economy using open- ended survey questions, fielded during a large shock to inflation, and test the predictions of theories of rational, goal-optimal attention allocation. We find support for several predictions of such theories: attention to the macroeconomy exhibits large and persistent cross-sectional heterogeneity, which is related to agents’ degree of exposure to the economy and measures of information costs; attention to the macroeconomy responds strongly to shocks; more attentive respondents adjust their inflation expectations more frequently during the shock, are more confident in their beliefs, and hold smaller misperceptions about realized inflation. However, at odds with goal-optimality of attention, more attentive agents’ expectations about future inflation deviate more strongly from expert benchmarks. To explain these patterns, we present a model of selective memory, in which attention can be “non-goal-optimal”. In this model, prior experiences shape both attention allocation and belief formation, and attention to other variables can spill over to inflation expectations. We confirm these additional predictions in our data.
