arXiv subjects

Oliver Pfäuti

Publications and source records attributed to Oliver Pfäuti.

2 recordsLinked to original sources

arXiv2024

The Inflation Attention Threshold and Inflation Surges

At the outbreak of the recent inflation surge, the public's attention to inflation was low but increased quickly once inflation started to rise. In this paper, I quantify when and by how much the public's attention to inflation changes, and derive the macroeconomic implications of these attention changes. I estimate an attention threshold at an inflation rate of about $4%$, and that attention doubles when inflation exceeds this threshold. Adverse supply shocks become more inflationary in times of high attention, and the increase in people's attention to inflation in 2021 accounts for half of the subsequent supply-driven inflation. I develop a model accounting for the attention threshold and show that shocks that are usually short lived lead to a persistent surge in inflation if they induce an increase in people's attention. The attention threshold further lengthens the last mile of disinflation after an inflation surge, and leads to an asymmetry in the dynamics of inflation.

econ.GN↗

arXiv2023

Inflation -- who cares? Monetary Policy in Times of Low Attention

I propose an approach to quantify attention to inflation in the data and show that the decrease in the volatility and persistence of U.S. inflation after the Great Inflation period was accompanied by a decline in the public's attention to inflation. This decline in attention has important implications (positive and normative) for monetary policy as it renders managing inflation expectations more difficult and can lead to inflation-attention traps: prolonged periods of a binding lower bound and low inflation due to slowly-adjusting inflation expectations. As attention declines the optimal policy response is to increase the inflation target. Accounting for the lower bound fundamentally changes the normative implications of declining attention. While lower attention raises welfare absent the lower-bound constraint, it decreases welfare when accounting for the lower bound.

econ.GN↗