Heterogeneity and aggregate fluctuations: insights from TANK models

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• dc.contributor.author Debortoli, Davide
• dc.contributor.author Galí, Jordi, 1961-
• dc.date.accessioned 2025-07-22T14:38:56Z
• dc.date.embargoEnd info:eu-repo/date/embargoEnd/2026-12-31
• dc.date.issued 2025
• dc.date.updated 2025-07-22T14:38:56Z
• dc.description.abstract We analyze the merits and limitations of simple tractable New Keynesian models (RANK [representative agent New Keynesian] and TANK [two-agent New Keynesian]) in accounting for the aggregate predictions of heterogeneous agent New Keynesian models (HANK). By means of comparison of a number of nested HANK models, we investigate the role played by (1) idiosyncratic income risk, (2) a binding borrowing constraint, and (3) a portfolio choice between liquid and illiquid assets. We argue that the effects of household heterogeneity can be largely understood by looking at the differential behavior of two types of households: hand-to-mouth and unconstrained. We find that a suitably specified and calibrated TANK model (which abstracts from idiosyncratic income risk) can capture reasonably well the aggregate implications of household heterogeneity and the main channels through which it operates. That ability increases in the presence of a policy rule that emphasizes inflation stability. In the limiting case of a strict inflation-targeting policy, heterogeneity becomes irrelevant for the determination of aggregate output.
• dc.description.sponsorship Galí acknowledges the financial support from the European Research Council under the European Union's Horizon 2020 research and innovation program (Grant 882332-HEMPEF). Both authors acknowledge financial support from the Agencia Estatal de Investigación (AEI) through the Severo Ochoa Programme for Centres of Excellence in R&D (Barcelona School of Economics CEX2019-000915-S) and grant PID2020-116268GB-I00 (Debortoli) and from the Generalitat de Catalunya through the CERCA Programme.
• dc.embargo.liftdate 2026-12-31
• dc.format.mimetype application/pdf
• dc.identifier.citation Debortoli D, Galí J. Heterogeneity and aggregate fluctuations: insights from TANK models. NBER Macroecon Annu. 2025;39(1):307-57. DOI: 10.1086/735272
• dc.identifier.doi http://dx.doi.org/10.1086/735272
• dc.identifier.issn 0889-3365
• dc.identifier.uri http://hdl.handle.net/10230/70971
• dc.language.iso eng
• dc.publisher University of Chicago Press
• dc.relation.ispartof NBER Macroeconomics Annual. 2025;39(1):307-357
• dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/882332
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/PID2020-116268GB-I00
• dc.relation.uri http://hdl.handle.net/10230/59524
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• dc.subject.keyword Monetary policy
• dc.subject.keyword Idiosyncratic income risk
• dc.subject.keyword Incomplete markets: Representative household
• dc.subject.keyword New Keynesian model
• dc.subject.keyword HANK models
• dc.title Heterogeneity and aggregate fluctuations: insights from TANK models
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/publishedVersion