Heterogeneity in macroeconomics: implications for monetary policy

Abstract

There is important heterogeneity among households, firms, and banks; and the way shocks or policies affect these agents depends critically on that heterogeneity. There was a rapid surge in the awareness of academic researchers and policymakers of the nexus between heterogeneity and monetary policy, with the emergence of a new class of models subsequently known as HANK, an acronym for heterogeneous-agent new Keynesian. The HANK models combine two long-standing traditions of macroeconomic theory: (i) the new Keynesian approach to the study of business cycles and stabilization policies and (ii) the heterogeneous-agent incomplete market approach to the study of the wealth distribution and of those policies that offer social insurance, promote income mobility, and redistribute income across households. This volume focuses on the role of heterogeneity in macroeconomics and its implications for monetary policy in general and Chile in particular. Understanding the heterogeneous micro implications of a given macro aggregate shock can improve our knowledge of how the economy works and help us forecast its future evolution.