Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334946 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3086
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We introduce an estimated medium scale Heterogeneous-Agent New Keynesian model for forecasting and policy analysis in the Euro Area and discuss the applications of this type of models in central banks, focusing on two main exercises. First, we examine an alternative scenario for monetary policy during the early 2020s inflationary episode, showing that earlier hikes in interest rates would have affected more strongly households at the lower end of the wealth distribution, whose consumption our model suggests was already depressed relative to the rest of the population. To provide intuition for this result, we introduce a new decomposition of the effects of monetary policy on consumption across the wealth distribution. Second, we show that introducing heterogeneous households does not come at the cost of forecasting accuracy by comparing the performance of our model to its exact representative-agent counterpart and demonstrating nearly identical results in predicting key aggregate variables.
Subjects: 
Heterogeneous-Agent New Keynesian Models
Inequality
Forecasting
Monetary Policy
euro area
economic forecasting
microeconomics
macroeconomics
JEL: 
D31
E12
E21
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7404-2
Document Type: 
Working Paper

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