Monetary Policy According to HANK
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.