HANK faces unemployment
Since the advent of Heterogeneous Agent New Keynesian (HANK) models, countercyclical unemployment risk has been deemed an important amplification mechanism for business cycles shocks. Yet, the aggregate effects of such “unemployment fears” are hard to pin down. We thus revisit this issue in the context of a rich two-asset HANK model, proposing new ways to isolate their general equilibrium effects and tackle the long-standing challenge of modelling wage bargaining in this class of model.