Working Paper: CEPR ID: DP14279
Authors: Adrien Auclert; Matthew Rognlie; Ludwig Straub
Abstract: 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.
Keywords: HANK; estimation; investment
JEL Codes: E21; E22; E23; E32; E43; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High MPCs (E49) | Procyclical response of consumption to investment shocks (E20) |
| Investment responsiveness to monetary policy shocks (E43) | Cumulative output response (C69) |
| Investment shocks (E22) | Output variation at business cycle frequencies (E32) |
| Investment shocks (E22) | Business cycle fluctuations (E32) |
| High MPCs + Investment responsiveness (E22) | Procyclical consumption (E21) |
| Investment responsiveness to monetary policy shocks (E43) | Output response in representative-agent model (E13) |