When Does Household Heterogeneity Matter for Aggregate Fluctuations?

Zheng Gong ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper decomposes a Heterogeneous-Agent New Keynesian (HANK) model’s responses to aggregate shocks into Representative-Agent (RANK) and redistribution effects. RANK effects are obtained by introducing counterfactual transfers neutralizing redistribution, ensuring homogeneous agent responses. Redistribution effects stem from the HANK model’s response to the derived redistribution shock, which breaks down into interest rate exposure, income exposure, and liquidity channels. Following a monetary policy shock, RANK effects explain 62% of the consumption response; the interest rate, income, and liquidity channels contribute 16%, 14%, and 8% respectively. The decomposition is also applied to literature to identify key redistribution channels driving model dynamics.

Keywords: Heterogeneous households; Monetary Policy; Fiscal Policy; HANKmodel; Inequality; Business cycles. (search for similar items in EconPapers)
JEL-codes: D31 E21 E43 E52 E62 (search for similar items in EconPapers)
Pages: 83
Date: 2025-01
New Economics Papers: this item is included in nep-cba and nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_624

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