Attention Allocation and Heterogenous Consumption Responses

15:30-17:00, Friday, May 27, 2022

Tencent Meeting (Meeting ID: 940 428 693)

Dr. Penghui YIN is now an assistant professor at School of Economis, Shandong University. He earned his Ph.D. in economics from Goethe University Frankfurt in 2020. His research interests lie at macroeconomics, information economics, and behavioral economics. He has his paper published in Journal of Economic Dynamics and Control.

This paper studies how agents allocate their limited attention between capital income and labor income risks in a two-period consumption-saving model with recursive utility. Specifically, we examine how the optimal attention and consumption-saving decisions are impacted by the attention capacity, wealth endowments, preferences for risk and time, and the amount of income risks. We show that our model is consistent with several novel facts regarding consumption changes around the Great Recession. Furthermore, we find that the welfare loss due to limited attention is significantly larger for households with lower wealth, and it can be significantly reduced when the agents are allowed to flexibly allocate their attention.

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