| Abstract: |
Bounded rationality and limited attention significantly influence expectation
formation and macroeconomic dynamics, yet empirical quantification of these
behavioral phenomena remains challenging. This paper provides the first
cross-country estimation of both micro- and macro-level attention parameters
using a structurally identified behavioral New Keynesian model. Employing
Bayesian techniques on harmonized data from 22 OECD countries (1996-2019) and
ensuring robust parameter identification, we document substantial
heterogeneity in behavioral inattention across countries. Our cognitive
discounting estimates range from 0.76 to 0.98, with higher values indicating
greater attention. We establish three key empirical regularities: (1)
attention parameters are positively associated with macroeconomic volatility,
supporting rational inattention theory; (2) surprise movements in key
macroeconomic variables and online information-seeking behavior significantly
influence attention allocation; and (3) institutional quality, particularly
government effectiveness, is correlated with attention levels. These findings
reveal that attention is both a behavioral and a structural phenomenon,
responding to institutional factors and economic conditions. Our results
provide an empirical foundation for calibrating country-specific models and
yield important implications for the design and transmission of monetary
policy under bounded rationality, showing that policy effectiveness may
systematically vary with the macroeconomic environment. |