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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 UK 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%.
