Monetary Policy According to HANK

Greg Kaplan, Benjamin Moll and Giovanni L. Violante

American Economic Review, 2018, vol. 108, issue 3, 697-743

Abstract: We revisit the transmission mechanism from monetary policy to household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two features: uninsurable income shocks and multiple assets with different degrees of liquidity and different returns. 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 the substitution channel drives virtually all of the transmission from interest rates to consumption. Failure of Ricardian equivalence implies that, in HANK models, the fiscal reaction to the monetary expansion is a key determinant of the overall size of the macroeconomic response.

JEL-codes: D31 E12 E21 E24 E43 E52 E62 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20160042
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Citations: View citations in EconPapers (756)

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Related works:
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 (2016)
Working Paper: Monetary Policy According to HANK (2015)
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