Mechanism
Distribution, liquidity constraints, unequal balance sheets, and marginal propensities to consume shape transmission.
Related lineage
Modern Heterogeneous-Agent Macro
How Modern Heterogeneous-Agent Macro explains recessions, inflation, and what policy can actually do.
A school becomes useful when it helps you read the same inflation print, recession, or policy error differently from the default story.
Macro map
School lineage
Keep the broader macro map visible while following one argument or stepping across related schools.
Overview
How modern heterogeneous-agent macro frames the macro problem
Start with the line of thought in plain language before moving into mechanism, criticism, and comparison.
Modern Heterogeneous-Agent Macro starts from the view that the economy cannot be understood well if all households and firms are treated as one representative agent.
In practice, that means macro outcomes are read through distribution, liquidity constraints, unequal balance sheets, and marginal propensities to consume shape transmission. The policy instinct that follows is straightforward: policy effects depend on who is constrained, who borrows, and who absorbs the shock.
Next move
Keep the diagnosis visible, then open policy or models.
Mechanism
The mechanism this tradition puts at the center.
Every school earns attention by naming the mechanism it thinks mainstream accounts flatten or miss.
Policy instinct
Policy effects depend on who is constrained, who borrows, and who absorbs the shock.
Main critiques
- Can be more complex to teach and estimate than representative-agent systems.
- Model richness raises implementation and interpretation costs.
How this tradition reads macro problems
The same data point looks different from this line of thought.
This is where disagreement becomes visible: the same unemployment print or inflation spike takes on a different meaning depending on what you think is binding.
Recessions
Become more severe when constrained households and fragile balance sheets cut spending quickly.
Inflation
Transmission differs across households, sectors, rents, wages, and financing positions.
Self-correction
Uneven because balance-sheet damage and constraints make recovery asymmetric.
Policy
Yes, but only when it reaches the agents and channels that actually move spending.
Models
HANK, heterogeneous-agent, and balance-sheet-sensitive models.
Scenario reading
How this tradition tends to diagnose familiar macro setups.
Scenarios are where the tradition becomes practical rather than historical or taxonomic.
inflation spike
Inflation spike
Look at who faces the price shock, who has buffers, and how expectations differ across households.
recession
Recession
Balance sheets and constraints determine whose spending collapses first and by how much.
rate hike
Interest-rate hike
Transmission is unequal: borrowers, renters, banks, and asset holders do not move together.
fiscal stimulus
Large fiscal stimulus
Most effective when it reaches high-MPC households and strained balance sheets.
banking stress
Banking stress
A distributional and credit event as much as a macro-financial one.
Routes
Keep the argument visible while you move into policy, models, or related branches.
Once the tradition is legible, the next move is to decide whether to follow its policy instinct, its favored model, or a neighboring branch.
Policy paths
Sources
Keep the lineage visible while you follow the disagreement.
Schools are useful when they stay tied to concrete claims, not when they become labels on their own.
Sources & References
- Kaplan, G., Moll, B., and Violante, G. Monetary Policy According to HANK, 2018.
- Auclert, A. Monetary Policy and the Redistribution Channel, 2019.
- Handbook and survey articles on heterogeneous-agent macroeconomics.