Working Paper

Inflation Thresholds and Inattention


Abstract: Inflation expectations are key to economic activity, and in the current economic climate of a heated labor market, they are central to the policy debate. At the same time, a growing literature on inattention suggests that individuals, and therefore individual behavior, may not be sensitive to changes in inflation when it is low. This paper explores evidence of such inattention by constructing three different measures based on the University of Michigan’s Survey of Consumers 1-year ahead inflation expectations. Exploring inflation thresholds of 2, 3, and 4 percent, our findings are consistent with the inattention hypothesis.

Keywords: inattention; Phillips curve; inflation expectations;

JEL Classification: E31; D84; D83; E71;

https://doi.org/10.29412/res.wp.2019.14

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2019-09-01

Number: 19-14

Pages: 17