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Heterogeneous Expectations in HANK Models: Empirical Evidence, New Solution Methods, and Macroeconomic Implications

01/01/2027 to 31/12/2028

Modern macroeconomics increasingly relies on Heterogeneous Agent New Keynesian (HANK) models to analyze distributional effects of monetary and fiscal policy, and potentially to better capture aggregate dynamics. However, the overwhelming majority of existing HANK models still rely on the Full‐Information Rational Expectations (FIRE) assumption. This is increasingly untenable: it assumes that households perfectly observe all relevant information and forecast future prices by solving a complex general equilibrium model—an assumption that is empirically rejected by survey evidence and cognitively implausible (Moll, 2024). This project answers Benjamin Moll’s recent call to move beyond FIRE by incorporating empirically grounded expectation-formation processes into macroeconomic models. To do so, we will close the gap between micro-level evidence on heterogeneous expectations and structural HANK modeling.