Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 461: HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations

Bence Bardóczy (), Ettore Savoia () and Mateo Vel´asquez-Giraldo ()
Additional contact information
Bence Bardóczy: Federal Reserve Board
Ettore Savoia: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Mateo Vel´asquez-Giraldo: Federal Reserve Board

Abstract: We study the transmission and distributional effects of monetary policy in an environment where consumption-saving choices reflect both precautionary motives and life-cycle considerations. Age emerges as a key state variable linking multiple dimensions of heterogeneity: young households have low wealth, high marginal propensities to consume, and strongly procyclical hours. In a quantitative model matching these facts, monetary policy operates primarily by stimulating investment and boosting labor demand for young workers. Wealthy retirees are affected through asset repricing and lower future returns, but the consumption and welfare effects for most retirees are small because they hold little financial wealth.

Keywords: HANK; Heterogeneous Agents; Life-Cycle Dynamics; Monetary Policy; Redistribution.

JEL-codes: D31; D91; E21; E32; E52

Language: English

85 pages, January 1, 2026

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