Monetary Policy According to HANK

Giovanni Violante, Greg Kaplan and Benjamin Moll

No 11068, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.

Keywords: Monetary policy; Heterogeneous agents; New keynesian; Consumption; Liquidity; Inequality; Earnings kurtosis (search for similar items in EconPapers)
JEL-codes: D14 D31 E21 E52 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (144)

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Related works:
Journal Article: Monetary Policy According to HANK (2018)
Working Paper: Monetary Policy According to HANK (2017)
Working Paper: Monetary Policy According to HANK (2016)
Working Paper: Monetary policy according to HANK (2016)
Working Paper: Monetary Policy According to HANK (2016)
Working Paper: Monetary Policy According to HANK (2015)
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