Attention-Dependent Monetary Transmission to Household Beliefs
July 14, 2026
Summary
When does monetary policy move household inflation expectations? The authors find policy news shifts beliefs primarily among attentive households, while others barely respond. Because attention rises in recessions and uncertain times, monetary transmission becomes nonlinear and is strongest when stakes are highest.
View PaperWorking Paper 2026-8
Abstract: The expectations channel of monetary policy is state dependent because households endogenously adjust attention to macroeconomic conditions. We develop a behavioral framework in which attention trades off forecast accuracy against cognitive cost, so monetary policy operates through an expectations multiplier. Using the Michigan Survey, we proxy attentiveness from whether households’ reading of business conditions matches realized outcomes, measured before identified policy shocks arrive. Policy news moves inflation beliefs primarily among attentive households, especially those with greater economic exposure; others barely respond. In the aggregate, pass-through scales with attentiveness and strengthens in recessions and high-uncertainty periods, making monetary transmission nonlinear.
JEL classification: E31, E32, E52, E58, E70
Key words: inflation expectations, monetary policy transmission, rational inattention, state dependence, expectations multipliers
https://doi.org/10.29338/wp2026-09
The authors thank Rüdiger Bachmann, ChaeWon Baek, Pierre De Leo, Stefano Eusepi, Andrew Figura, Byoungchan Lee, Alistair Macaulay, James Morley, Ekaterina Peneva, Jane Ryngaert, John Shea, Wenting Song, Tao Wang, as well as seminar participants at the Bank of Korea, the University of Maryland, Federal Reserve Board, Sogang University, 2026 North American Summer Meeting of the Econometric Society, the Inaugural CMT Conference on Expectations and Behavior, 2026Macroeconomic Relevance of Measured Beliefs Conference, 2023 SNDE Young Economist Workshop, and the 16th Joint Economics Symposium of Six Leading East Asian Universities for their valuable comments and suggestions. We gratefully acknowledge financial support from the R.K. Cho Research Cluster Program. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Jaemin Jeong is with Duke University. Eunseong Ma is with Yonsei University. Choongryul Yang is with the Federal Reserve Bank of Atlanta.
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