General and Partial equilibrium in HANK, two-agent New-Keynesian DSGE Hand to Mouth plus optimizers and GE-PE in RANK-TANK model

Abstract

In HANK model GE vs PE paths differ substantially: in GE the endogenous interest-rate and wage responses amplify the transition dynamics (GE consumption and mean assets tend to be higher during the recovery because lower early  or higher later returns change saving incentives). Wealth inequality (Gini on assets) rises initially in both PE and GE after the MIT shock, then declines gradually; the timing and peak differ across PE and GE because of endogenous factor-price feedbacks. PE exaggerates inequality and consumption losses, since households cannot rely on price movements.GE dampens these effects: wages and interest rates move endogenously, redistributing resources across households and time.In RANK compared to TANK: Partial Equilibrium (PE): treats policy instruments as exogenous — IRFs show the “direct” effect of shocks. General Equilibrium (GE): closes the system with a Taylor rule. Responses are typically dampened or altered because policy reacts endogenously. GE introduces stabilizing feedback; PE exaggerates shock persistence/size. Fiscal transfer is highly effective in stimulating demand because Hand to Mouth consume all of it.The central bank reacts with higher interest rates (Taylor rule), partially offsetting demand.