Monetary Policy in a Non-Representative Agent Economy: A Survey
National Bank of Poland Working Paper No. 95
53 Pages Posted: 20 Sep 2011 Last revised: 8 Jul 2016
Date Written: September 1, 2011
It is well-known that central bank policies affect not only macroeconomic aggregates, but also their distribution across economic agents. Similarly, a number of papers demonstrated that heterogeneity of agents may matter for the transmission of monetary policy on macro variables. Despite this, the mainstream monetary economics literature has so far been dominated by dynamic stochastic general equilibrium (DSGE) models with representative agents. This article aims to tilt this imbalance towards heterogeneous agents setups by surveying the main positive and normative findings of this line of the literature, and suggesting areas in which these models could be implemented. In particular, we review studies that analyze the heterogeneity of households’ income, households’ preferences, consumers’ age, expectations, and firms’ productivity and financial position. We highlight the results on issues that, by construction, cannot be investigated in a representative agent framework and discuss important papers modifying the findings from the representative agent literature.
Keywords: heterogeneous agents, monetary policy
JEL Classification: E31, E32, E43, E44, E52
Suggested Citation: Suggested Citation