TY  - JOUR
AU  - Kaplan, Greg
AU  - Moll, Benjamin
AU  - Violante, Giovanni L
TI  - Monetary Policy According to HANK
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21897
PY  - 2016
Y2  - January 2016
DO  - 10.3386/w21897
UR  - http://www.nber.org/papers/w21897
L1  - http://www.nber.org/papers/w21897.pdf
N1  - Author contact info:
Greg Kaplan
Department of Economics
University of Chicago
1126 E 59th St
Chicago, IL 60637
E-Mail: gkaplan@uchicago.edu

Benjamin Moll
London School of Economics
Houghton Street
London WC2A 2AE
United Kingdom
Tel: 609/258-0329
E-Mail: b.moll@lse.ac.uk

Giovanni L. Violante
Department of Economics
Princeton University
Julis Romo Rabinowitz Building
Princeton, NJ 08540
E-Mail: violante@princeton.edu
AB  - We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.
ER  -