Household Wealth Differences Change How Fiscal and Monetary Policy Work
Greg Kaplan argues that macroeconomic models need to account for differences in households’ wealth, liquidity and spending behavior to explain how fiscal and monetary policies affect the economy. In his discussion with Jon Hartley, Kaplan traces the shift from Keynes’s consumption function to heterogeneous-agent New Keynesian models, which show why the effects of a policy depend on who receives it and how households can use their resources. He says such models are most useful for testing counterfactuals, not forecasting near-term output.
Hoover Institution·Oct 29, 2026·16 min read
