Working Paper: NBER ID: w26647
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: Monetary Policy; Business Cycles; HANK Model
JEL Codes: E21; E22; E32; E43; E52; E70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment responsiveness (G11) | Cumulative output response (C69) |
| Monetary policy shocks (E39) | Investment (G31) |
| Investment shocks (E22) | Consumption dynamics (E21) |
| High MPCs (E49) | Procyclical response of consumption to investment shocks (E20) |
| Investment shocks (E22) | Business cycles (E32) |
| Investment responsiveness (G11) | Overall impact of monetary policy (E52) |