Thank you!

Much more in the paper, including memory interference of other variables (e.g., energy), co-movement of attention to different variables, etc.

Thanks for reading!
Comments & questions always welcome

Link to the working paper: opfaeuti.github.io/website/Atte...

Consistent with this theory, we show
- agents with inflation experiences pay more attention to inflation as inflation increases
- and they increase their expectations more strongly, deviating more from expert benchmarks

We then present a model of selective memory, in which experiences interfere with agents' expectation formation & attention allocation:
- agents that experienced past inflation, recall memories of these episodes in times of high inflation

➡️ increase their expectations too much

However, at odds with these theories, we find:
- attentive agents increase their (inflation) expectations too strongly: they deviate more from expert benchmarks than inattentive agents during a high-inflation period
- they disagree more about forecasts than about nowcasts

And attention and beliefs are linked to decisions:
- firms that pay more attention to inflation tend to increase (or plan to increase) their prices more during that period of high inflation

We find evidence for theories of goal-optimal attention (e.g. rational inatt):
- attention is related to exposure & info costs
- attention is state dependent
- attentive agents update expectations more frequently
- are more confident in their beliefs
- have more accurate nowcasts

We collect measures of German households' and firms' attention to the economy during the recent inflation surge, using a new survey approach based on open-ended questions, and we test theories of attention