Monetary Policy and Heterogeneity: An Analytical Framework

Florin Bilbiie

No 12601, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: THANK is a tractable heterogeneous-agent New-Keynesian model that captures analytically key micro-heterogeneity channels of quantitative-HANK: cyclical inequality and risk as separate but related channels; idiosyncratic uncertainty and self-insurance, precautionary saving; and realistic intertemporal marginal propensities to consume. I use it for a full-fledged New Keynesian macro analysis: determinacy with interest-rate rules, solving the forward-guidance puzzle, amplification and multipliers, and optimal monetary policy. Amplification requires countercyclical while solving the puzzle requires procyclical inequality: a Catch-22, resolved in theory if the separate "pure" risk channel is procyclical enough. Price-level-targeting ensures determinacy and is puzzle-free, even when both inequality and risk are countercyclical, thus resolving the Catch-22. The same holds for a rule fixing nominal public debt in the model version with liquidity. Optimal policy with heterogeneity features a novel inequality-stabilization motive generating higher inflation volatility---but it is unaffected by risk, insofar as the target equilibrium entails no inequality.

Keywords: Heterogeneity; Inequality; Liquidity; Tractable hank; Optimal monetary policy; Forward guidance puzzle; Taylor and wicksellian rules; Determinacy; Multipliers (search for similar items in EconPapers)
JEL-codes: E21 E31 E40 E44 E50 E52 E58 E60 E62 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: Monetary Policy and Heterogeneity: An Analytical Framework (2024)
Working Paper: Monetary Policy and Heterogeneity: An Analytical Framework (2024)
Working Paper: Monetary Policy and Heterogeneity: An Analytical Framework (2019)
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