Monetary Policy According to HANK
Greg Kaplan, Benjamin Moll, Giovanni L. Violante
Summary
The paper builds a Heterogeneous Agent New Keynesian (HANK) model in which households hold liquid and illiquid assets, generating realistic distributions of marginal propensities to consume. It uses this framework to analyze the transmission of monetary policy, decomposing the response of consumption into direct (intertemporal substitution) and indirect (general-equilibrium income) channels. The authors find that, unlike in representative-agent models, indirect effects operating through labor income dominate the transmission of interest rate changes.
Key findings
- A two-asset HANK model matches empirical MPC distributions via 'wealthy hand-to-mouth' households.
- Monetary transmission is driven mainly by indirect general-equilibrium income effects rather than direct intertemporal substitution.
- The composition of the fiscal/policy response to interest rate changes materially affects the consumption response.
Subjects & keywords
Cite this paper
Greg Kaplan, Benjamin Moll, & Giovanni L. Violante (2018). Monetary Policy According to HANK. American Economic Review. https://doi.org/10.1257/aer.20160042
@article{kaplan2018monetary,
author = {Greg Kaplan and Benjamin Moll and Giovanni L. Violante},
title = {Monetary Policy According to HANK},
journal = {American Economic Review},
year = {2018},
doi = {10.1257/aer.20160042},
url = {https://doi.org/10.1257/aer.20160042}
}