A comparison of monetary policy rules in a HANK model

Arbeitspapier

This paper provides a comparison of monetary policy rules with make-up and/or asymmetric elements for a heterogeneous agent New Keynesian (HANK) model. The model features incomplete financial markets, nominal price and wage rigidities, rational expectations, an occasionally binding effective lower bound (ELB) on the short-term nominal interest rate as well as aggregate demand and cost-push shocks. Simulations show that symmetric policy rules with make-up elements can substantially lower the downward inflation bias induced by the ELB and reduce macroeconomic volatility. Asymmetric policy rules can address the downward inflation bias as well but lead to a substantial overshooting of the inflation target if they also feature make-up elements. The predictions of the HANK model for the considered policy rules are close to those obtained for a corresponding (representative agent) model version with complete markets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Technical Paper ; No. 02/2021

Classification and Topics

• Classification: Wirtschaft ; Personal Income, Wealth, and Their Distributions ; Macroeconomics: Consumption; Saving; Wealth ; Price Level; Inflation; Deflation ; Monetary Policy ; Central Banks and Their Policies ; Wage Level and Structure; Wage Differentials
• Subject: Monetary Policy ; HANK ; Household Heterogeneity ; Effective Lower Bound ; Make-Up Strategies ; Asymmetric Policy Rules ; Inequality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dobrew, Michael ; Gerke, Rafael ; Giesen, Sebastian ; Röttger, Joost
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/283325
• Last update: 10.03.2025, 11:45 AM CET