Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154332
Authors: 
Kaplan, Greg
Moll, Benjamin
Violante, Giovanni L.
Year of Publication: 
2016
Series/Report no.: 
ECB Working Paper 1899
Abstract: 
We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.
Subjects: 
consumption
earnings kurtosis.
heterogeneous agents
inequality
liquidity
monetary policy
new keynesian
JEL: 
D14
D31
E21
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2040-7
Document Type: 
Working Paper

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