Debortoli, DavideGalí, Jordi, 1961-2025-07-222025Debortoli D, Galí J. Heterogeneity and aggregate fluctuations: insights from TANK models. NBER Macroecon Annu. 2025;39(1):307-57. DOI: 10.1086/7352720889-3365http://hdl.handle.net/10230/70971We 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.application/pdfeng© University of Chicago Press http://www.journals.uchicago.edu/ET/home.html If a shorter embargo period is required by government or funding body mandate, only the final accepted version of the manuscript may be released. Can I include my published article in an official institutional repository? You may place your published article in a non-commercial data repository maintained by an institution of which you are a member provided you meet all relevant conditions described in these Guidelines and in the editorial office's communications with you. An institutional repository as distinguished from your personal or departmental web site is designed for the systematic storage retrieval and delivery of scholarly material. Your article may be made publicly available after the appropriate embargo period* has been observed. You are responsible for informing the manager of the institutional repository of the embargo period that must be observed. Please also note the comments elsewhere in these Guidelines regarding prior publication and anonymous peer review and the use of copyrighted material in your article. *The embargo period is 3 years after publication for Publications of the Astronomical Society of the Pacific and 12 months for all other journals.info:eu-repo/semantics/article2025-07-22http://dx.doi.org/10.1086/735272Monetary policyIdiosyncratic income riskIncomplete markets: Representative householdNew Keynesian modelHANK modelsinfo:eu-repo/semantics/embargoedAccess