Attention to the macroeconomy

We provide evidence on the dynamics, drivers, and consequences of attention to the macroeconomy using tailored panel surveys of German firms and households. Draw-ing on novel measures of attention based on open-ended questions collected before and during a historic shock to inflation, we document three sets of results: First, at-tention to the macroeconomy is characterized by large and persistent individual het-erogeneity, responds strongly to changes in the economic environment, and is nega-tively correlated with attention to household- or firm-level topics. Second, more at-tentive respondents are more likely to adjust inflation expectations during the shock, have higher confidence in their beliefs, and hold smaller misperceptions about re-alized inflation, yet their expectations about future inflation deviate more strongly from professional forecasts. Third, personal experiences are associated with house-holds’ attention allocation and belief formation during the shock in a time-varying way, consistent with similarity-based recall. Our results have implications for model-ing attention allocation and expectation formation about the economy.