Endogenous Attention and the Asymmetry of Monetary Policy

Households do not process monetary policy news symmetrically. Using monthly microdata from the ECB’s Consumer Expectations Survey matched to high-frequency euro-area monetary policy surprises, we document a kinked attention-shock mapping: attention rises sharply after contractionary surprises but responds weakly to expansionary surprises of comparable magnitude. This asymmetry strengthens in high-volatility regimes and is concentrated among high-attention households, generating state-dependent dispersion in expectations. To measure these dynamics, we construct a Dynamic Attention Index that captures effective information processing at the household level. We develop a tractable model of Asymmetric State-Dependent Rational Inattention in which agents choose signal precision optimally, but the marginal cost of attention depends on both the sign of policy news and the macroeconomic regime. This minimal generalization of rational inattention reproduces the kinked attention-shock mapping and implies that the elasticity of expectations is an endogenous state variable. Embedding the mechanism in a New Keynesian environment yields asymmetric and regime-contingent monetary transmission. Tightening shocks propagate more strongly in turbulent periods not because structural parameters change, but because households endogenously allocate more attention. Because individual attention choices affect aggregate volatility through expectations, equilibrium attention is not generally socially optimal. In volatile states it becomes excessive, introducing a cognitive externality and a new welfare margin for monetary policy.