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Macroeconomic school

Modern Heterogeneous-Agent Macro

Modern Heterogeneous-Agent Macro on recessions, inflation, policy, and the mechanism it treats as decisive.

Related lineage

School thesis

Heterogeneous-agent macro asks which households, firms, and balance sheets actually move aggregate outcomes. The representative agent becomes a special case rather than the default.

Modern Heterogeneous-Agent Macro starts from the economy cannot be understood well if all households and firms are treated as one representative agent.

Mechanism: distribution, liquidity constraints, unequal balance sheets, and marginal propensities to consume shape transmission. Policy instinct: policy effects depend on who is constrained, who borrows, and who absorbs the shock.

Use when

The binding channel is visible

The distribution of marginal propensities to consume across the wealth and income distribution, differential transmission of monetary and fiscal policy across household types, idiosyncratic risk and precautionary saving, and the redistribution channel of monetary policy.

Evidence burden

Show timing and measurement

Empirical MPC estimates are sharply higher for liquidity-constrained and lower-wealth households than for the representative agent benchmark, visible in tax-rebate experiments and high-frequency card data.

Rival check

Name the stronger alternative

Aggregate-equivalent outcomes from RANK calibrations matching the data as well as HANK across a wide range of policy experiments.

Mechanism chain

From claim to policy rule

Claim

Binding constraint

The economy cannot be understood well if all households and firms are treated as one representative agent.

Mechanism

Transmission

Distribution, liquidity constraints, unequal balance sheets, and marginal propensities to consume shape transmission.

Policy read

Policy implication

Policy effects depend on who is constrained, who borrows, and who absorbs the shock.

Mechanism

Required conditions

The claim needs each step in the data; a missing link weakens the whole interpretation.

Distribution

Start from unequal balance sheets

Liquid wealth, debt, income risk, housing status, and credit access determine who adjusts spending first.

Transmission

Policy moves through income and cash flow

Monetary and fiscal policy often work more through labor income, debt service, and transfers than through pure intertemporal substitution.

Aggregation

The mean can hide the mechanism

Aggregate consumption and inflation can depend on who receives income, who pays interest, and who is liquidity constrained.

Reads the economy through

distribution / liquidity constraints / MPCs / transmission heterogeneity

Lineage

Lineage and inheritance

Historical moves show which problem the tradition was built to solve and which claim it keeps defending.

Incomplete markets

Idiosyncratic risk enters macro

Aiyagari-style models put uninsured income risk and precautionary saving into general equilibrium.

HANK

New Keynesian transmission with heterogeneity

HANK models combine sticky prices with household balance sheets and MPC dispersion.

Modern use

Distributional macro policy

The framework is most useful when policy incidence, liquidity, debt, and asset ownership are central.