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When Does Household Heterogeneity Matter for Aggregate Fluctuations?

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  • Zheng Gong

Abstract

This paper decomposes a Heterogeneous-Agent New Keynesian (HANK) model’s responses to aggregate shocks into Representative-Agent (RANK) and redistribution effects. RANK effects are obtained by introducing counterfactual transfers neutralizing redistribution, ensuring homogeneous agent responses. Redistribution effects stem from the HANK model’s response to the derived redistribution shock, which breaks down into interest rate exposure, income exposure, and liquidity channels. Following a monetary policy shock, RANK effects explain 62% of the consumption response; the interest rate, income, and liquidity channels contribute 16%, 14%, and 8% respectively. The decomposition is also applied to literature to identify key redistribution channels driving model dynamics.

Suggested Citation

  • Zheng Gong, 2025. "When Does Household Heterogeneity Matter for Aggregate Fluctuations?," CRC TR 224 Discussion Paper Series crctr224_2025_624, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_624
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    More about this item

    Keywords

    Heterogeneous households; Monetary Policy; Fiscal Policy; HANKmodel; Inequality; Business cycles.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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