Search Results
Working Paper
HANK Comes of Age
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 ...
Working Paper
Life-Cycle Portfolio Choices and Heterogeneous Stock Market Expectations
Survey measurements of households’ expectations about U.S. equity returns show substantial heterogeneity and large departures from the historical distribution of actual returns. The average household perceives a lower probability of positive returns and a greater probability of extreme returns than history has exhibited. I build a life-cycle model of saving and portfolio choices that incorporates beliefs estimated to match these survey measurements of expectations. This modification enables the model to greatly reduce a tension in the literature in which models that have aimed to match ...
Working Paper
HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations
We study the transmission and distributional effects of monetary policy in an environment where consumption-saving choices reflect both precautionary motives and life-cycle considerations. Age emerges as a key state variable that links multiple dimensions of heterogeneity: young households tend to have low wealth, high marginal propensities to consume, and strongly procyclical hours. In our quantitative model that matches these facts, monetary policy operates primarily by stimulating investment, boosting labor demand for young workers who consume most of their additional income. Wealthy ...
Working Paper
Sequence-Space Jacobians of Life-Cycle Models
The sequence-space Jacobian (SSJ) method of Auclert et al. (2021a) has made heterogeneous-agent models far easier to solve, fueling an explosion of applications. But even SSJ strains against capacity constraints when state spaces grow very large, as in economies with overlapping generations of heterogeneous agents (HA-OLG). We show how to exploit the special properties of age—finite planning horizons and deterministic transitions between ages—to compute the Jacobians of a general class of HA-OLG models orders of magnitude faster. We provide rigorous proofs, age-specific Jacobians that ...