The Fisher Channel According to HANK: Unexpected Inflation and the Missing Recession *

Abstract

This paper studies the propagation to aggregate consumption of the redistribution of wealth from savers to borrowers triggered by the recent inflation episode in the US. In a HANK model featuring a realistic distribution of nominal exposures, as well as their covariance with the marginal propensity to consume (MPC), I show that this redistribution generates a modest increase in aggregate consumption, since borrowers have a higher MPC than savers. It also contributes to additional inflation persistence. I find empirical support by leveraging billions of transactions from a fintech company in the US where I am able to identify mortgagors, as well as exploiting variation in consumption and nominal debt at the county level using publicly available data. Finally, I study the model implications, showing a quantitatively significant role for the Fisher channel in enhancing the effectiveness of monetary policy, as well as revisiting the 'paradox of flexibility'.

Keywords: Inflation, Redistribution, Household Heterogeneity, Net Nominal Positions, Consumption, HANK, Monetary Policy, Alternative Data

JEL Classification: D12, D14, D31, E21, E52, E58