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HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations

Author

Listed:
  • Bardóczy, Bence

    (Federal Reserve Board)

  • Savoia, Ettore

    (Research Department, Central Bank of Sweden)

  • Vel´asquez-Giraldo, Mateo

    (Federal Reserve Board)

Abstract

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 linking multiple dimensions of heterogeneity: young households have low wealth, high marginal propensities to consume, and strongly procyclical hours. In a quantitative model matching these facts, monetary policy operates primarily by stimulating investment and boosting labor demand for young workers. Wealthy retirees are affected through asset repricing and lower future returns, but the consumption and welfare effects for most retirees are small because they hold little financial wealth.

Suggested Citation

  • Bardóczy, Bence & Savoia, Ettore & Vel´asquez-Giraldo, Mateo, 2026. "HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations," Working Paper Series 461, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0461
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    File URL: https://www.riksbank.se/globalassets/media/rapporter/working-papers/2026/no.-461-hank-comes-of-age-monetary-policy-with-heterogeneous-overlapping-generations.pdf
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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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