DP14279 Micro Jumps, Macro Humps: Monetary Policy and Business Cycles in an Estimated HANK Model

Author(s):	Adrien Auclert, Matthew Rognlie, Ludwig Straub
Publication Date:	January 2020
Keyword(s):	estimation, HANK, investment
JEL(s):	E21, E22, E23, E32, E43, E52
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14279

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.