The History of Macroeconomics from Keynes to HANK Models with Greg Kaplan

Macroeconomic understanding relies heavily on theoretical thought experiments rather than immutable facts, creating tension between academic models and real-world observations. Greg Kaplan, Alvin H. Baum Professor of Economics at the University of Chicago, explains the evolution of macroeconomic thinking from Keynesian consumption functions to modern Heterogeneous Agent New Keynesian (HANK) models. These models incorporate micro-level data on household liquidity and precautionary savings to better explain consumption responses to fiscal and monetary policy. Unlike representative agent models, HANK frameworks highlight that monetary policy impacts are often tenuous and highly distributional, depending on specific household wealth and debt structures. Structural models serve as essential tools for evaluating counterfactual policy scenarios—such as wealth taxes or stimulus programs—where historical data is insufficient, providing a rigorous environment to test economic mechanisms rather than merely forecasting short-term market movements.