Cyclical Attention to Saving

Alistair Macaulay

American Economic Journal: Macroeconomics, 2025, vol. 17, issue 4, 124-67

Abstract: I explore the business-cycle implications of household inattention to savings product choices. In a model with heterogeneous banks, savers pay more attention to their bank choice when the marginal utility of income is high. Consistent with this, in data from the United Kingdom retail savings market, I find savers more reliably choose products closer to the top of the available interest rate distribution during contractions. Countercyclical attention amplifies shocks to consumption: after contractionary shocks, attention rises, so savers experience higher interest rates, which further reduces consumption. In a quantitative New Keynesian model, this amplification increases the variance of consumption by 13.6 percent.

JEL-codes: E12 E32 E43 E71 G21 G51 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/mac.20220311

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