HANK and the Transmission of Shocks to Demand and Supply

Karsten Chipeniuk, Gulnara Nolan and Matt Nolan
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Karsten Chipeniuk: Reserve Bank of New Zealand
Gulnara Nolan: Reserve Bank of Australia
Matt Nolan: e61 Institute

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: In this paper we study the propagation of demand and supply shocks in a heterogeneous agent New Keynesian model. Calibrating the model to Australia, we explore how inequality in the model affects shock transition, as well as how shocks impact individuals differently across the distribution. Contrary to much of the literature, with a single asset in the model we find a dampening in the response of the real economy to a monetary policy shock, driven by falling consumption in the extremes of the distribution. This dampening is likely due to the high holdings of liquid assets by many households in the model, which allows these households to effectively smooth their consumption, emphasising the need to include further asset classes. In the case of supply shocks, we likewise find a dampened response of the real economy to both a labour disutility shock and a mark-up shock. These results highlight the need to explore models with more realistic asset classes in the Australian context.

Keywords: heterogeneous agents; supply; inflation (search for similar items in EconPapers)
JEL-codes: E21 E31 (search for similar items in EconPapers)
Date: 2025-06
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2025-04

DOI: 10.47688/rdp2025-04

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