community groups. fifth, we have received many suggestions about how to increase the consistency and predictability of cra evaluations and ratings. although we are still in the process of working through the public ’ s comments, those we have read so far suggest general support for the view that the cra regulations and examinations would benefit from more clarity, consistency, and predictability. likewise, there is an openness to expanding the use of metrics that evaluate components of a bank ’ s activity on an assessment area level, while recognizing the importance of also leveraging performance context information, including of a qualitative nature, so that bankers and examiners are able to identify and understand local community needs. the first panel this morning on metrics and evaluating performance also helped further our understanding in this area, with particular focus on the investment behaviors of cra - motivated banks and on how we might strengthen the cra to better evaluate a bank ’ s performance in meeting the credit needs of its communities. sixth, in both comment letters and roundtables, community and consumer groups emphasized the historical context of the cra as it relates to redlining practices. to that end, they strongly supported the cra retaining a proactive focus on reaching all underserved borrowers, including low - income communities and communities of color. the central thrust of the cra is to encourage banks to ensure that all creditworthy borrowers have fair access to credit, and, to do so successfully, it has long been recognized that they must guard against discriminatory or unfair and deceptive lending practices. this has been an excellent convening so far, and i want to thank you for sharing your knowledge and insights with us. the federal reserve is a research - driven institution, and we want to be sure that we are aware of all the latest research on the effectiveness of the cra and what the research has to say about potential regulatory improvements. today ’ s conversation is an opportunity not only to hear from external academic researchers, but also to have a robust conversation with practitioners about how this research might inform the board ’ s work. this afternoon, i look forward to hearing the conversation on the effectiveness of the cra, past, present, and future. i have had opportunities to hear directly from stakeholders in a variety of settings, kicking off with a community development visit in baltimore last april and most recently in denver, at our first regional roundtable. 4 the denver roundtable was attended by state member banks and was

.. - 7of the shock doesn ’ t matter. the size of the shock basically scales the effect proportionately without changing the timing of when past changes affect current values of a variable. what i am going to argue is that the size of the shock may lead to changes in economic behavior that change the coefficients in the statistical models. in less jargony words, the degree of sluggish behavior of economic variables to a policy surprise is not constant but can change with the size and nature of the shock. 5 there are a lot of reasons to think that “ big shocks travel fast, ” meaning they elicit a change in economic behavior that would not be associated with small shocks. in the past year the fomc has raised rates faster than it has in forty years, so we should be skeptical about whether statistical models based on historical experience will be reliable in estimating lags for such an unusual event. to support this line of reasoning, let me use some examples to illustrate the concept that big shocks travel fast. first, a large area of economic research focuses on the idea of “ rational inattention. ” 6 the basic idea is that households and firms have a limited amount of attention that they can dedicate to processing information. it is costly and time consuming to constantly adjust behavior and portfolios in response to small changes in prices or interest rates. consequently, people must decide which data to focus on and how often they look at it. because households and firms “ rationally ignore ” certain data most economists will recognize this application of the lucas critique. see the recent survey article by bartosz mackowiak, filip matejka, and mirko wiederholt ( 2023 ), “ rational inattention : a review, ” journal of economic literature, vol. 61 ( march ), pp. 226 – 73, https : / / doi. org / 10. 1257 / jel. 20211524. - 8and only look at them infrequently, their behavior looks sluggish in how they respond to small shocks. but this sluggishness does not apply when big shocks hit. for example, large changes in interest rates will get a lot of attention and have a much faster and dramatic impact on consumption, saving and portfolio allocation. the apparently “ sluggish behavior ” based on small shocks disappears, and households and firms change their behavior much more quickly. big changes in policy rates will tend to cause more