Macro Technical Paper No. 7
By Daniel Albuquerque, Ed Hill, Sean Lavender, Jamie Lenney and Alberto Polo
We develop a medium‑scale Heterogeneous Agent New Keynesian (HANK) model tailored to the UK, featuring rich household heterogeneity alongside detailed housing, international, and fiscal blocks. The model generates realistic income and wealth distributions as well as marginal propensities to consume consistent with UK evidence. We use the model to decompose monetary transmission into its key transmission channels and assess their relative importance. We then demonstrate the model’s versatility through several policy‑relevant applications: across tenure groups, mortgagors’ consumption is most sensitive to house price changes; a lower share of sterling invoicing in exports mildly weakens monetary transmission; balanced‑budget fiscal reaction functions strengthen monetary transmission; and shifts in household balance sheets over the past two decades have dampened the transmission of interest rate changes to prices.
A UK-HANK model 