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Rationally Inattentive savers and Monetary Policy Changes: A Laboratory Experiment

Andrea Civelli (), Cary Deck and Antonella Tutino
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Antonella Tutino: Federal Reserve Bank of Dallas

Working Papers from Chapman University, Economic Science Institute

Abstract: We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward guidance. These ?ndings agree with recent empirical evidence on monetary policy e?ects on consumption behavior in U.S. and internationally.

Keywords: Rational Inattention; Experimental Evidence' Information Processing Capacity; Consumption (search for similar items in EconPapers)
JEL-codes: C91 D11 D8 E20 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-mac, nep-mon, nep-ore and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:20-02

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