Working Paper

HANK Comes of Age

Abstract: We study the aggregate and distributional effects of monetary policy in a heterogeneous agent New Keynesian model that explicitly represents the life cycle of households. The model matches the age patterns in the level and dispersion of labor income and financial wealth in the U.S. despite the absence of preference heterogeneity and portfolio adjustment costs. Monetary policy affects the consumption of young households mainly through labor income and the consumption of old households mainly through asset returns. More than half of the aggregate consumption response to an expansionary monetary policy shock comes from those below the age of 40. The shock redistributes welfare from the wealthiest old to the poorest young and increases average welfare of most cohorts.

Keywords: Life cycle; Heterogeneous agents new keynesian (hank) models; Monetary policy transmission;

JEL Classification: E52; E21; E12;

https://doi.org/10.17016/FEDS.2024.052

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2024-07-12

Number: 2024-052