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Asymmetric Attention

Alexandre Kohlhas
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Alexandre Kohlhas: Institute for International Economic Studies, Stockholm University

No 1040, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We document simultaneous over- and under-responses to new information by households, firms, and professional forecasters in survey data. Such responses are inconsistent with existing models based on behavioral bias or rational inattention. We demonstrate that a structural, component-based model of information choice can reconcile the disparate facts. We show that optimally chosen, asymmetric attention to different observables can explain the co-existence of over- and under-responses. We then embed our model of information choice into a micro-founded macroeconomic model, which generates expectations consistent with the survey data. We demonstrate that our model creates over-optimistic consumption beliefs in booms and predictability in consumption changes. We confirm auxiliary implications of the model in the data.

New Economics Papers: this item is included in nep-dge
Date: 2018
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