HANK

Supplementary topic (prep material)

This lecture develops the Heterogeneous Agent New Keynesian (HANK) model following Kaplan-Moll-Violante (2018), whose three building blocks are uninsurable idiosyncratic income risk, nominal price rigidities, and assets with different degrees of liquidity. Unlike RANK, where monetary policy operates almost entirely through the direct real-interest-rate channel (intertemporal substitution), in a HANK model calibrated to micro data the direct effect accounts for less than one third of the response, with most transmission running through the indirect effects of income changes, so that the overall effect also depends crucially on the fiscal response. The model setup covers two-asset households, production, and a continuous-time New Keynesian Phillips curve; the solution part introduces continuous-time heterogeneous-agent methods, namely the HJB equation and the Kolmogorov-Forward equation, finite differences (the upwind scheme), and the computational trick that their operators are mutual adjoints. This is prep material that is not on the current syllabus and connects to the sequence-space Jacobian (SSJ) methods of Lecture 09.

Materials

• Slides: HTML · PDF

Readings

• Kaplan, Moll & Violante (2018), “Monetary Policy According to HANK,” AER 108(3), 697–743.
• Auclert (2019), “Monetary Policy and the Redistribution Channel,” AER 109(6), 2333–2367.
• Guerrieri & Lorenzoni (2017), “Credit Crises, Precautionary Savings, and the Liquidity Trap,” QJE 132(3), 1427–1467.