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Cyclical Attention to Saving

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  • Alistair Macaulay

Abstract

I explore the business-cycle implications of household inattention to savings product choices. In a model with heterogeneous banks, savers pay more attention to their bank choice when the marginal utility of income is high. Consistent with this, in data from the United Kingdom retail savings market, I find savers more reliably choose products closer to the top of the available interest rate distribution during contractions. Countercyclical attention amplifies shocks to consumption: after contractionary shocks, attention rises, so savers experience higher interest rates, which further reduces consumption. In a quantitative New Keynesian model, this amplification increases the variance of consumption by 13.6 percent.

Suggested Citation

  • Alistair Macaulay, 2025. "Cyclical Attention to Saving," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(4), pages 124-167, October.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:4:p:124-67
    DOI: 10.1257/mac.20220311
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    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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