Hank model sheds light on fiscal theory of the price level – paper

Adding heterogeneity allows FTPL models to reflect persistent government deficits, economists find

Greg Kaplan
Greg Kaplan, University of Chicago

New research aims to build a “bridge” between heterogeneous agent New Keynesian (Hank) models and the fiscal theory of the price level (FTPL), potentially allowing for greater realism.

Greg Kaplan, Georgios Nikolakoudis and Giovanni Violante say heterogeneity is important for two key reasons. First, it allows for dynamics that reflect microeconomic evidence on how households actually behave. Second, governments issued large amounts of debt as a means of redistributing income during the Covid

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