Research

Working papers

Rational Inattention Choices in Firms and Households (Job Market Paper) [Paper]

Abstract. Recent surveys indicate that households associate higher expected inflation with lower expected output growth, while firms and professionals often associate higher expected inflation with higher expected growth. Standard macroeconomic models struggle to explain this heterogeneity. This paper explains the asymmetric view by allowing households and firms to endogenously choose what they pay attention to, based on their respective incentives. Households find it optimal to pay more attention to supply shocks because that most affects their real income, while firms optimally pay more attention to demand shocks because of their larger impact on profits. I develop a dynamic general equilibrium model with rationally inattentive households and firms and show that its predictions align with survey evidence. Attention choices influence the propagation of the shocks, affecting the slope of the Phillips curve. Furthermore, central bank communication that fails to consider the heterogeneous attention choices may have unintended consequences.

Presentations: JME-SNB-Gerzensee Conference on Informational Frictions in Macroeconomics (in Honor of Robert E. Lucas, Jr.), October 25 - 26, 2024; EEA 2024; 53rd Annual Conference of the Money, Macro and Finance Society (MMF); PhD-Economics Virtual Seminar (EVS); RES 2024 Annual Conference, Belfast; EPOC Doctoral Workshop, Venice; Norges Bank Workshop; Expectations in Dynamic Macroeconomic Models, Vienna; Economics Research Jamboree (2023); Behavioural Finance Group (BFG) (2023); PhD Economics Virtual Seminar; Warwick/Oxford Macro/International workshop (2023); Oxford Macro Working Group Seminar (2022).

Limited Memory, Time-Varying Expectations and Asset Pricing (with Guido Ascari) [Paper]

Abstract. We propose a theory of asset pricing based on limited memory and time-varying expectations. The former guarantees a tendency to revert to fundamentals. The latter induces `momentum’ in asset prices and it is motivated by a novel empirical observation about a time-varying mapping from price-dividend ratio to return expectations in survey data. The simulated method of moments shows that the model quantitatively replicates a host of asset-pricing features, including equity premium, excessive volatility, persistence of price-dividend ratio, predictability of excess returns and the consumption correlation puzzle. The model also generates empirically plausible subjective expectations.

Presentations: Expectations in Dynamic Macroeconomic Models, Vienna; EEA-ESEM 2022, Milan; 53rd Annual Conference of the Money, Macro and Finance Society (MMF), Canterbury; Royal Economic Society (RES) Symposium of Junior Researchers; 4th Behavioural Macroeconomics Workshop, Bamberg (2022); 28th International Conference on Computing in Economics and Finance, Dallas (2022); 6th International Workshop on Financial Markets and Nonlinear Dynamics, Paris (2022); 7th International Young Finance Scholars' Conference (2021); 1st PhD Workshop on Expectations in Macroeconomics; Oxford Macro Working Group Seminar (2021).