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A Further Look at the Propagation of Monetary Policy Shocks in HANK

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  • FELIPE ALVES
  • GREG KAPLAN
  • BENJAMIN MOLL
  • GIOVANNI L. VIOLANTE

Abstract

We provide quantitative guidance on whether and to what extent different elements of Heterogeneous Agent New Keynesian (HANK) models amplify or dampen the response of aggregate consumption to a monetary policy shock. We emphasize four findings. First, the introduction of capital adjustment costs does not affect the aggregate response, but does change the transmission mechanism so that a larger share of indirect effects originates from equity prices rather than from labor income. Second, incorporating estimated unequal incidence functions for aggregate labor income fluctuations leads to either amplification or dampening, depending on the data and estimation methods. Third, distribution rules for monopoly profits that allocate a larger share to liquid assets lead to greater amplification. Fourth, assumptions about the fiscal reaction to a monetary policy shock have a stronger effect on the aggregate consumption response than any of the other three elements.

Suggested Citation

  • Felipe Alves & Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "A Further Look at the Propagation of Monetary Policy Shocks in HANK," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 521-559, December.
  • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:s2:p:521-559
    DOI: 10.1111/jmcb.12761
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    References listed on IDEAS

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    Cited by:

    1. Bloesch, Justin & Weber, Jacob P., 2021. "Structural Changes in Investment and the Waning Power of Monetary Policy," SocArXiv 7zhqp, Center for Open Science.
    2. Yan Ji & Songyuan Teng & Robert Townsend, 2021. "Branch Expansion versus Digital Banking: The Dynamics of Growth and Inequality in a Spatial Equilibrium Model," NBER Working Papers 28582, National Bureau of Economic Research, Inc.
    3. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.

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