A further look at the propagation of monetary policy shocks in HANK

Felipe Alves, Greg Kaplan, Ben Moll and Gianluca Violente

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We provide quantitative guidance on whether and to what extent different elements of Heterogeneous Agent New Keynesian (HANK) models amplify or dampen the response of aggregate consumption to a monetary policy shock. We emphasize four findings. First, the introduction of capital adjustment costs does not affect the aggregate response, but does change the transmission mechanism so that a larger share of indirect effects originates from equity prices rather than from labor income. Second, incorporating estimated unequal incidence functions for aggregate labor income fluctuations leads to either amplification or dampening, depending on the data and estimation methods. Third, distribution rules for monopoly profits that allocate a larger share to liquid assets lead to greater amplification. Fourth, assumptions about the fiscal reaction to a monetary policy shock have a stronger effect on the aggregate consumption response than any of the other three elements.

Keywords: monetary policy; heterogeneous agents; new Keynesian; unequal incidence; investment adjustment Cost; profit distribution; Fiscal accommodation; Taylor rule (search for similar items in EconPapers)
JEL-codes: D14 D31 E21 E52 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Journal of Money, Credit and Banking, 1, December, 2020, 52(S2), pp. 521 - 559. ISSN: 0022-2879

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Related works:
Journal Article: A Further Look at the Propagation of Monetary Policy Shocks in HANK (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:107420

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