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HANK and the Transmission of Shocks to Demand and Supply

Author

Listed:
  • Karsten Chipeniuk

    (Reserve Bank of New Zealand)

  • Gulnara Nolan

    (Reserve Bank of Australia)

  • Matt Nolan

    (e61 Institute)

Abstract

In this paper we study the propagation of demand and supply shocks in a heterogeneous agent New Keynesian model. Calibrating the model to Australia, we explore how inequality in the model affects shock transmission, as well as how shocks impact individuals differently across the distribution. Contrary to much of the literature, with a single asset in the model we find a dampening in the response of the real economy to a monetary policy shock, driven by falling consumption in the extremes of the distribution. This dampening is likely due to the high holdings of liquid assets by many households in the model, which allows these households to effectively smooth their consumption, emphasising the need to include further asset classes. In the case of supply shocks, we likewise find a dampened response of the real economy to both a labour disutility shock and a mark-up shock. These results highlight the need to explore models with more realistic asset classes in the Australian context.

Suggested Citation

  • Karsten Chipeniuk & Gulnara Nolan & Matt Nolan, 2025. "HANK and the Transmission of Shocks to Demand and Supply," RBA Research Discussion Papers rdp2025-04, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2025-04
    DOI: 10.47688/rdp2025-04
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    More about this item

    Keywords

    heterogeneous agents; supply; inflation;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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