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  5. Is There a Core of Usable Macroeconomics We Should All Believe In?
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Is There a Core of Usable Macroeconomics We Should All Believe In?

Paper Session

Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)

Hilton San Francisco Union Square, Continental Ballroom 4
This session was streamed live.
Hosted By: American Economic Association
  • Chair: Ayşegül Şahin, Princeton University

HANK: A New Core of Usable Macroeconomics

Adrien Auclert
,
Stanford University

Abstract

I argue that Heterogeneous-Agent New Keynesian (“HANK”) models are a natural contender to define a new core of usable macroeconomics, replacing the ISLM/Mundell-Fleming paradigm prevailing after the 1960s and the New Keynesian paradigm prevailing after the 1990s. HANK is “macro” (general equilibrium, aggregating up from behavior of optimizing units), it is “usable” (featuring rational expectations, consistent with the known macro effects of monetary and fiscal policy, and the micro behavior of consumption), and it has a “core” version (stripped down, easy to teach and build upon). I discuss what we know about this new core, what we are starting to learn, and where it still falls short.

Practical Stabilization Policy in the 21st Century

Martin Eichenbaum
,
Northwestern University

Abstract

N/A

The Evolving Core of Usable Macroeconomics for Policymakers

Bart Hobijn
,
Federal Reserve Bank of Chicago
Jonas Fisher
,
Federal Reserve Bank of Chicago
Alessandro T. Villa
,
Federal Reserve Bank of Chicago

Abstract

Macroeconomic models and policymakers' language have evolved significantly. Today’s policy discussions center on the New Keynesian (NK) synthesis, which builds on the Neoclassical growth model and the AS-AD framework. It incorporates nominal and real rigidities, financial and labor market frictions, the importance of expectations, and inspired terms used by policymakers such as “anchored inflation expectations” and “forward guidance.” While essential for communication during the Great Recession and COVID-19 pandemic, these events also revealed the NK model's limitations. Newer models incorporating heterogeneous agents potentially offer richer policy insights but add complexity and the challenge of distilling their main policy implications going forward.

Heterogenous Agents and Welfare

Ayse Okten Imrohoroglu
,
University of Southern California

Abstract

N/A
JEL Classifications
  • E0 - General