Bence Bardoczy

Journal of Monetary Economics 156 p. 1-18

We study how excess savings affect consumption and propagate through the macroeconomy, which permits us to evaluate the contribution of excess savings to post-pandemic inflation in the U.S. In partial equilibrium, the aggregate spending response depends on the initial distribution of excess savings and the cross-sectional heterogeneity in marginal propensities to consume. In general equilibrium, canonical RANK, TANK, and HANK models make markedly different predictions about the macroeconomic consequences of excess savings even if household wealth follows nearly identical paths. A quantitative HANK model matches the decumulation of the excess savings built up during the COVID-19 pandemic across the income distribution. The model attributes about a third of the trough-to-peak change in inflation to demand fueled by excess savings.

Review of Economics and Statistics 105(3) p. 700-712 Doi: https://doi.org/10.1162/rest_a_01072

Abstract We show that New Keynesian models with frictionless labor supply face a challenge: given standard parameters, they cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. A HANK model with sticky wages provides a solution to this trilemma.

Econometrica 89(5) p. 2375-2408 Doi: https://doi.org/10.3982/ecta17434

We propose a general and highly efficient method for solving and estimating general equilibrium heterogeneous‐agent models with aggregate shocks in discrete time. Our approach relies on the rapid computation of sequence‐space Jacobians —the derivatives of perfect‐foresight equilibrium mappings between aggregate sequences around the steady state. Our main contribution is a fast algorithm for calculating Jacobians for a large class of heterogeneous‐agent problems. We combine this algorithm with a systematic approach to composing and inverting Jacobians to solve for general equilibrium impulse responses. We obtain a rapid procedure for likelihood‐based estimation and computation of nonlinear perfect‐foresight transitions. We apply our methods to three canonical heterogeneous‐agent models: a neoclassical model, a New Keynesian model with one asset, and a New Keynesian model with two assets.

National Bureau of Economic Research Doi: https://doi.org/10.3386/w35705

Automatic stabilizers can respond to a recession without a new policy decision, but their effects on aggregate demand may still only arrive with delay. We study the transmission lag for unemployment insurance extensions in a heterogeneous-agent New Keynesian model that closely matches the incidence of unemployment risk and the response of household spending to job loss and UI extensions. More generous UI stimulates demand largely by relaxing precautionary saving, so households must anticipate future unemployment risk and benefit duration. To quantify this channel, we work directly with survey expectations, using a measured history of forecast errors and revisions, rather than committing to a specific model of belief formation. Our estimated model implies a significant Expectations-Driven Efficacy Lag. The direct effect of UI extensions on consumption peaks only after UI duration has begun to recede. In general equilibrium, the consumption multiplier is about 0.6 on impact, about half its value under full-information rational expectations, but the policy becomes more effective by the end of the first year of the recession.

National Bureau of Economic Research Doi: https://doi.org/10.3386/w35335

This paper studies how labor market power affects the transmission of monetary policy. Using administrative U.S. Census data, we show that firms with high monopsony power—defined as those accounting for over 10 percent of the local wage bill—respond less to monetary policy in terms of their wage bill and employment. We then develop a New Keynesian model with heterogeneous firms and oligopsonistic competition to interpret these findings. Wage stickiness combined with firms’ labor market power is key to generating the heterogeneous responses that we document. Our model highlights two channels through which oligopsony shapes the aggregate effects of monetary policy: partial passthrough and misallocation. Calibrated to U.S. labor markets, the model implies that the decline in labor market power since the 1980s has increased the output response to monetary policy by about 10 percent and accounts for about 15 percent of the estimated flattening of the Phillips curve.

Social Science Research Network Doi: https://doi.org/10.2139/ssrn.5274675

The sequence-space Jacobian (SSJ) method of Auclert et al. (2021a) has made heterogeneous-agent models far easier to solve, fueling an explosion of applications. But even SSJ strains against capacity constraints when state spaces grow very large, as in economies with overlapping generations of heterogeneous agents (HA-OLG). We show how to exploit the special properties of age—finite planning horizons and deterministic transitions between ages—to compute the Jacobians of a general class of HA-OLG models orders of magnitude faster. We provide rigorous proofs, age-specific Jacobians that decompose aggregate dynamics across cohorts, an application to the dynamic general-equilibrium effects of secularly declining birth rates, and an accessible cookbook for adopting our method.

Social Science Research Network Doi: https://doi.org/10.2139/ssrn.4890035

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.