Precautionary saving and un-anchored expectations

This paper revisits monetary policy in a heterogeneous agents new Keynesian (HANK) model where use adaptive learning (AL) order to form their expectations. Due the households' finite heterogeneity triggered by idiosyncratic unemployment risk, is subject micro-founded expectations that are not anchored rational expectation path. Households experience different histories which has non-trivial consequences on individual AL processes. In this model, supply shocks generate precautionary saving and possible long-lasting disinflationary traps associated with excess saving. Dovish policies focused closing output gap dampen effects contradiction previously established representative agent under results. Price level targeting appears resolve most of problem netter anchoring long-run future utility flows.