Working Paper: NBER ID: w30329
Authors: Eric R. Sims; Jing Cynthia Wu; Ji Zhang
Abstract: This paper studies the implications of household heterogeneity for the effectiveness of quantitative easing (QE). We consider a heterogeneous agent New Keynesian (HANK) model with uninsurable household income risk. Financial intermediaries are subject to an endogenous leverage constraint that allows QE to matter. We find that macro aggregates react very similarly to a QE shock in the HANK model compared to a representative agent (RANK) version of the model. This finding is robust across different micro- and macro- distributions of wealth.
Keywords: quantitative easing; household heterogeneity; New Keynesian model; financial intermediaries
JEL Codes: E12; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| QE shock (C22) | macroeconomic responses (E65) |
| wealth inequality (D31) | consumption response of the poorest households after QE shock (D12) |
| micro distribution of dividends (G35) | aggregate dynamics (E10) |
| higher unemployment rates (J64) | aggregate effects of QE shock (E19) |