Thread by @R2Rsquared

If people pay attention to everything and know it all, they don't need to form expectations of inflation: they just know it. However, information is incomplete, and we have limited attention. So, we make predictions based on a limited set of information
ideas.repec.org/h/eee/monchp/3…

Theories of attention are theories where people choose whether to spend some scarce resource (time, money, brain capacity) to expand their set of information. With it, they update their expectations. This change in beliefs makes them change some actions.
ideas.repec.org/p/cpr/ceprdp/1…

Read: “It is far more useful to ensure that inflation remains off of people’s radar screens than it would be to attempt to “re-anchor” expected inflation” as the main policy advice in an argument that expectations are not important to understand inflation
doi.org/10.17016/FEDS.…

If we get something on or off people’s radar screens, then we are affecting their attention. In the theories that I know, attention matters because it changes expectations. If expectations don’t matter, then why does people’s attention matter so much?
bit.ly/2Y3TPTu

Perhaps the problem is that my brain is too formatted by existing, well laid-out formal models of attention. But I have trouble with simultaneously thinking that (i) people’s attention is super important, and (ii) people’s expectations are irrelevant.
doi.org/10.1146/annure…

I noted this at the start of my intervention at the #ECBForum yesterday. More on that, and on inflation expectations, in the next few days.