Three Essays on the Implications of Limited Attention in Economics

Released on by Jérémy Boccanfuso
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  • Three Essays on the Implications of Limited Attention in Economics Book Detail

  • Author : Jérémy Boccanfuso
  • Release Date : 2020
  • Publisher :
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  • Pages : 0
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  • File Size : 48,48 MB
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Three Essays on the Implications of Limited Attention in Economics by Jérémy Boccanfuso PDF Summary

Book Description: This dissertation is a collection of three essays on the economic implications of limited attention. It is supplemented with a general introduction (Chapter 1).The first chapter introduces an ongoing paradigm shift in the macroeconomic literature from full-information rational expectations to rationally inattentive economic agents. It then presents some characteristics of this new class of models and current challenges in the literature that motivates the work in this dissertation.The second chapter is a contribution to consumption theory. It studies the consumption-saving problem of a consumer who faces a fixed cost for paying attention to noisy information and whose attention strategy, i.e., whether or not she pays attention, can be a function of the underlying information. At the optimum, consumers chose to be at- tentive when evidence accumulates far from their prior beliefs. The model provides an explanation for four puzzling empirical findings on consumption and expectations. First, consumers' attention depends on the information content. Second, aggregate information rigidities vary over the business cycle. Third, consumers only react to large anticipated shocks and neglect the impact of small ones. Fourth, aggregate consumption dynamics vary over the business cycle. The third chapter is a theoretical contribution to the literature in behavioral public economics. It studies how information frictions in agents' tax perceptions affect the design of actual tax policy. Developing a positive theory of tax policy, it shows that agents' inattention interacts with policymaking and induces the government to implementinefficiently high tax rates. It then quantifies the magnitude of this policy distortion for the US economy. Overall, the findings suggest that existing information frictions - and thereby tax complexity - lead to undesirable, large and regressive tax increases.The fourth chapter is an empirical contribution to the macroeconomic literature on information frictions. Using the ECB survey of professional forecasters, it estimates a two margin forecast formation process that allows for forecast rounding on individual and consensus forecast data. Forecasters decide when to revise their forecast (extensive margin). When they do, they slowly incorporate new information (intensive margin) and may report a rounded value for their new forecast (rounding). It finds that these three rigidities simultaneously exist and estimate their respective contribution. The overall forecast stickiness is almost exclusively the consequence of the rigidities at the intensive margin. It then derives quarterly time series for the evolution of information frictions and proposes a simple mapping to account for these variations in economic models.

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