Title page
Contents
Abstract 2
1. Introduction 3
2. Life-Cycle Model of Households 7
2.1. Income Process 7
2.2. Hours and Labor Demand 8
2.3. Assets 9
2.4. Taxation 9
2.5. Preferences 10
2.6. Timing and Recursive Formulation 10
2.7. Calibration of the Household Model 12
2.8. Wealth Distribution and MPCs 14
3. A Life-Cycle HANK Model 21
3.1. Setup 21
3.2. Calibration 24
4. Monetary Policy in a Life-Cycle HANK 26
4.1. Aggregate Responses and Transmission Mechanisms 26
4.2. Monetary Policy Transmission Across the Life Cycle 31
4.3. The Redistributive Effects of Monetary Policy 33
5. Conclusions 39
References 40
Online Appendix 44
A. Appendix to Section 2 44
B. New Keynesian Closure 48
C. Additional Tables and Figures 61
Table 1. Estimated Household Parameters 14
Table 2. Wealth and Income Inequality 17
Table 3. Calibration of Macroeconomic Aggregates 25
Figure 1. Transmission of an Expansionary Monetary Policy Shock Across the Life Cycle 4
Figure 2. Summary of timing in the model 11
Figure 3. Age-Profiles of the Income Distribution in the Data and in the Model 13
Figure 4. Age Profiles of the Savings Distribution in the Data and in the Model 15
Figure 5. Lorenz Curves for Income and Wealth in the SCF Data and in our Model 16
Figure 6. The Role of Different Mechanisms for Wealth Accumulation 17
Figure 7. Intertemporal Marginal Propensities to Consume (iMPCs) 18
Figure 8. MPCs Across the Life Cycle and the Wealth Distribution 20
Figure 9. MPCs in Alternative Models that Target Life-Cycle Wealth Ratios 20
Figure 10. Aggregate Responses to an Expansionary Monetary Policy Shock 27
Figure 11. Decomposition of Aggregate Consumption Response to a Monetary Policy Shock 28
Figure 12. Decomposition of Aggregate Consumption Response to a Monetary Policy Shock: Labor Income 29
Figure 13. Decomposition of Aggregate Consumption Response to a Monetary Policy Shock: Asset Returns 30
Figure 14. Incidence of the Initial Consumption Response Across Cohorts 32
Figure 15. Decomposition of Consumption Response to a Monetary Policy Shock by Age 32
Figure 16. The Labor-Income and Asset-Returns Channels by Age 34
Figure 17. Welfare Effects of a Monetary Policy Shock Across the Life Cycle 36
Figure 18. Welfare Effects of a Monetary Policy Shock by Age and Wealth 38
Figure A.1. Age-Dependent Discretization for Persistent Income Shocks 45
Figure A.2. Persistence in Productivity and Shock Dynamics 45
Figure A.3. Fluctuations in Age-Specific Working Hours 47
Figure A.4. Share of Assets in Equity, Estimated Function 48
Figure B.1. Jacobians of the Firm Block with Respect to Output 54
Figure B.2. Jacobians of the Firm Block with Respect to Real Interest Rate 55
Figure B.3. Jacobians of the Firm Block with Respect to Real Wage 56
Figure C.1. Age Distribution of Households 61
Figure C.2. Fit of Wealth Ratios in Alternative Models 62
Figure C.3. Jacobians of the Household Block 63
Figure C.4. Welfare Effects of a Monetary Policy Shock Net of Disutility of Labor Supply 64