Consumers' Attention to Monetary Policy: The Importance of Having “Skin in the Game"

Ina Hajdini, Edward S. Knotek , James Mitchell, Mathieu Pedemonte and Taylor Shiroff

No 14807, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Using a five-year survey of over 170,000 US consumers, we provide a novel direct measure of attention to monetary policy and show that the data strongly support the predictions of a rational inattention model. First, attention is incentive-driven: consumers with “skin in the game” those planning major purchases like homes or cars are significantly more attentive to monetary policy news. Second, attention varies systematically with interest rate volatility and news supply, exhibiting cyclical patterns around FOMC meetings. Third, marginal effects of volatility and news supply decline with “skin in the game,” implying external factors primarily affect low-skin-in-the-game consumers. These findings imply that, when communication is costly and attention is endogenous, optimal central bank communications in our model target consumers who bear the largest welfare losses from information frictions. This targeted communication approach increases aggregate attention to monetary policy, leading to an amplified response of consumption to interest rate changes is endogenous, central banks should target communication efforts toward consumers who bear the largest welfare losses from information frictions. This targeted communication approach increases aggregate attention to monetary policy, leading to an amplified response of consumption to interest rate changes.

Keywords: Monetary policy; rational inattention; communication (search for similar items in EconPapers)
JEL-codes: D80 E50 (search for similar items in EconPapers)
Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:14807

DOI: 10.18235/0014555

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