New Keynesian Economics with Household and Firm Heterogeneity

Thomas Winberry, Adrien Auclert, Matthew Rognlie and Ludwig Straub

No 34611, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the past decade, the Heterogeneous-Agent New Keynesian (HANK) literature has shown that household heterogeneity matters for the transmission of monetary and fiscal policy. Drawing on lessons from this literature, we provide a framework for incorporating firm heterogeneity into HANK. Household models use precautionary savings and borrowing constraints to rationalize the high average marginal propensities to consume (MPCs) estimated in empirical work, and these high MPCs activate new transmission channels through after-tax-and-transfer income. Likewise, we develop a benchmark heterogeneous-firm model in which financial frictions can generate high average marginal propensities to invest (MPIs), activating analogous channels through after-tax-and-transfer cash flows. However, unlike for MPCs, we do not have a consensus set of credible estimates of the MPI distribution for a broad sample of firms. We therefore survey the choices that shape the MPI distribution, and so the strength of new policy transmission channels, within models.

JEL-codes: D1 D2 E21 E22 E31 E32 E43 E52 E62 (search for similar items in EconPapers)
Date: 2025-12
New Economics Papers: this item is included in nep-cba and nep-dge
Note: EFG ME
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w34611.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: New Keynesian Economics with Household and Firm Heterogeneity (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34611

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34611
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().