Finance and Economics Discussion Series (FEDS)
July 2024 (Revised December 2025)
HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations
Bence Bardóczy, Ettore Savoia, and Mateo Velásquez-Giraldo
Abstract:
We study the transmission and distributional effects of monetary policy in an environment where consumption-saving choices reflect both precautionary motives and life-cycle considerations. Age emerges as a key state variable that links multiple dimensions of heterogeneity: young households tend to have low wealth, high marginal propensities to consume, and strongly procyclical hours. In our quantitative model that matches these facts, monetary policy operates primarily by stimulating investment, boosting labor demand for young workers who consume most of their additional income. Wealthy retirees are affected by the repricing of financial assets and persistently low future returns. However, the effect on the consumption and welfare of most retirees is small because they hold little financial wealth.
Keywords: HANK, Heterogeneous Agents, Life-Cycle Dynamics, Monetary Policy, Redistribution
DOI: https://doi.org/10.17016/FEDS.2024.052r1
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