YIFAN ZHANG

Abstract. This paper develops a dynamic general equilibrium model with rationally inattentive households and firms and shows that they have endogenous and asymmetric attention choices. Households find it optimal to pay more attention to supply shocks because these shocks most affect their real income, while firms optimally pay more attention to demand shocks because of their larger impact on profits. These asymmetric attention choices can account for the supply side view of households and the demand side view of firms observed in survey data. Their attention choices vary with economic conditions, offering a joint explanation for the flattening of the Phillips curve in the pre-pandemic period and its steepening in the post-pandemic.

• Presentations: 2025 World Congress of the Econometric Society (ESWC), Seoul; Workshop on Macroeconomic Expectations, Padua;  JME-SNB-Gerzensee Conference on Informational Frictions in Macroeconomics (in Honor of Robert E. Lucas, Jr.), October 25 - 26, 2024; EEA 2024; 53rd Annual Conference of the Money, Macro and Finance  Society (MMF); PhD-Economics Virtual Seminar (EVS ); RES 2024 Annual Conference, Belfast; EPOC Doctoral Workshop, Venice; Norges Bank Workshop; Expectations in Dynamic Macroeconomic Models, Vienna; Economics Research Jamboree (2023); Behavioural Finance Group (BFG) (2023); PhD Economics Virtual Seminar; Warwick/Oxford Macro/International workshop (2023).

Abstract. This paper revisits equilibrium selection in forward-looking models by relaxing the standard assumption of perfect memory. Agents have limited memory but retain model-consistent rational expectations. This small friction makes backward-looking dynamics non-explosive and leads to a continuum of bounded equilibria, each expressible as a convex combination of the pure backward-looking and pure forward-looking solutions. A stochastic sunspot shock determines the evolving weight on these components, thereby pinning down the equilibrium path. We embed this mechanism in a standard consumption-based asset pricing model and show it can replicate key asset pricing facts, including momentum, a weak correlation between prices and fundamentals, and procyclical stochastic volatility. The model also generates empirically plausible subjective expectations.

• Presentations:  Expectations in Dynamic Macroeconomic Models, Vienna (Keynote); EEA-ESEM 2022, Milan; 53rd Annual Conference of the Money, Macro and Finance  Society (MMF), Canterbury; Royal Economic Society (RES) Symposium of Junior Researchers; 4th Behavioural Macroeconomics Workshop, Bamberg (2022); 28th International Conference on Computing in Economics and Finance, Dallas (2022); 6th International Workshop on Financial Markets and Nonlinear Dynamics, Paris (2022); 7th International Young Finance Scholars' Conference (2021); 1st PhD Workshop on Expectations in Macroeconomics;  Oxford Macro Working Group Seminar (2021). 

Abstract. This paper studies the interaction of rational inattention and borrowing constraints. When households are close to the borrowing constraint, over-consumption is a more costly mistake than under-consumption, because it leads to the constraint binding in the next period. As a result, the loss function from imperfect information is highly asymmetric for these households, leading them to optimally acquire skewed signals about future income growth. We show this in an analytically tractable consumption-saving model, and find evidence of the mechanism in survey data from the US. Finally, a quantitative version of the model reveals this idiosyncratic state-dependent information skewness amplifies business cycle asymmetry and uncertainty shocks, while implying progressive wealth taxation may stabilize aggregate shocks.

Abstract. The presence of an occasionally binding constraint from the effective lower bound (ELB) in New Keynesian models often leads to multiple or no equilibria. The problem stems from a strong feedback loop between expectations (of inflation and output) and current outcomes at the ELB. With non-existence, the economy cannot settle into a consistent, stable outcome; whilst with multiplicity, non-fundamental shifts in beliefs might trigger belief-driven recessions. To prevent such outcomes, policymakers need to ensure that their actions will produce a unique minimum state variable solution. We show that simple fiscal policy rules can introduce additional stabilising forces that dampen the feedback loop, thereby ensuring the existence and uniqueness of an equilibrium.