HANK-lite Model

Evidence and data

Use household balance sheets, liquid wealth, debt service, income risk, and marginal propensities to consume.

Calibration or measurement

MPC distribution, asset positions, income risk, and transfer rules determine aggregate transmission.

Boundaries

• A lite version cannot replace full household distribution estimation.
• Portfolio choice is simplified.
• Administrative policy details can change incidence.

Use guidance

When sufficient

Monetary-policy transmission when the distribution of liquid wealth across households determines how an interest-rate change feeds into aggregate demand. The Kaplan-Moll-Violante 2018 (AER) framework shows that indirect channels (changes in labor income, dividends, and asset prices that raise or lower spending by high-MPC households) dominate the direct intertemporal substitution channel for most rate cycles. The lite version is sufficient when the qualitative transmission pattern, not the full cross-sectional distribution, is the object.

When sketch only

A lite HANK model compresses the wealth distribution into a few types and cannot replace full Bewley-Aiyagari estimation for cross-sectional welfare analysis, detailed distributional incidence of tax changes, or questions about bequest motives and education investment across generations. Portfolio choice and the endogenous distribution of durable and illiquid assets are simplified or omitted.

When to switch

Switch to a full Bewley-Aiyagari framework when the question is about the stationary wealth distribution and its sensitivity to policy. Switch to an OLG model with within-cohort heterogeneity (theoretical:olg) when generational incidence and retirement saving are the focus alongside distributional concerns. Switch to a fiscal-multiplier model with hand-to-mouth households when the share of liquidity-constrained households is the key calibration target.

Falsification signal

Monetary transmission that operates primarily through the direct intertemporal-substitution channel rather than indirect income effects would falsify the model's central claim. If empirical estimates of the aggregate MPC response to an interest-rate cycle showed consumption moving mainly in high-wealth, low-MPC households rather than in hand-to-mouth and near-hand-to-mouth households, the distributional transmission mechanism would be absent from the data.