Micro Jumps, Macro Humps: Monetary Policy and Business Cycles in an Estimated HANK Model

By Adrien Auclert, Matthew Rognlie and Ludwig Straub


We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to investment shocks, leading our model to infer a central role for these shocks as a source of business cycles.

I have reported here about quite a few exciting heterogeneous agent papers that deepen our understanding of economic fluctuations. I have not gone back though all of them, but it is likely true that none of them is able to match the hump-shape response to monetary impulses. Indeed, the marginal propensity to consume of the less fortunate ones is very high and they react immediately to changes in economic conditions. This paper manages to get the hump in one particular way. One cannot exclude that there are other ways to get it, but know we know there is at least one plausible reconciliation of macro and micro facts.


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