Consumer Durables and Monetary Policy According to HANK

Durables’ interest-rate sensitivity and their persistent comovement with nondurable spending are hallmarks of monetary policy transmission. We develop a two-sector HANK model that replicates this pattern—both across spending categories and among households sorted by liquid asset holdings, consistent with empirical evidence. Direct effects of real interest rate changes are quantitatively important in reproducing sectoral expenditure comovement, while infrequent information updating is crucial to match the hump-shaped dynamics of sectoral and aggregate expenditures. Income effects are essential to preventing counterfactual declines in nondurable spending resulting from fiscal interventions specifically aimed at stimulating durable purchases.