How does heterogeneity affect the effectiveness of monetary policy and the properties of economic fluctuations? Using the distinction between constrained and unconstrained households at each point in time, we identify three channels at work in Heterogeneous Agent New Keynesian (HANK) models: (i) changes in the average consumption gap between constrained and unconstrained households, (ii) variations in consumption dispersion within unconstrained households, and (iii) changes in the share of constrained ...
How does heterogeneity affect the effectiveness of monetary policy and the properties of economic fluctuations? Using the distinction between constrained and unconstrained households at each point in time, we identify three channels at work in Heterogeneous Agent New Keynesian (HANK) models: (i) changes in the average consumption gap between constrained and unconstrained households, (ii) variations in consumption dispersion within unconstrained households, and (iii) changes in the share of constrained households . We analyze the quantitative importance of each of those factors for output fluctuations in a baseline HANK model. We show that a simple Two-Agent New Keynesian (TANK) model, with a constant share of constrained households and no heterogeneity within either type, approximates reasonably well the implications of a HANK model regarding the effects of aggregate shocks on aggregate output..
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