The Inflation Attention Threshold

From Oliver Pfäuti:

The recent inflation surge brought inflation back on people’s minds. I quantify when and how much attention to inflation changes and derive the macroeconomic implications of these attention changes. I estimate an attention threshold at an inflation rate of 4%, that attention doubles when inflation exceeds this threshold, and that supply shocks have stronger and more persistent effects on inflation in times of high attention. Developing a model featuring the attention threshold, I show that the observed attention changes offer a joint explanation for the recent inflation surge, its interplay with inflation expectations, and the long last mile of disinflation.

Here is the paper.