Human Capital Accumulation According to HANK

The heterogeneous model in macroeconomics has produced great developments in recent decades. One major development which includes heterogeneity relates to consumer behavior, especially in describing income and wealth inequality. More powerful and sophisticated computing technologies and the increasing availability of microdata have fueled these developments. Among these developments is the invention of the Heterogeneous agent New Keynesian (HANK) models. We advanced the Huggett model of income and wealth distribution to include human capital accumulation. The inclusion of human capital accumulation into a heterogeneous agent model enables us to capture not only wealth, but skill inequality and its dynamics. This paper provides two main contributions. We (i) construct a mathematical tool to analyze models with non-linearity, and (ii) provide implications for the policy of wealth redistribution, especially basic income. The conclusions of this analysis can be again summarized by the following three points: (i) the introduction of basic income may increase the share of liquidity constrained households, (ii) the introduction of basic income results in a decrease of the aggregate share of time spent investing in human capital, and (iii) the introduction of basic income may increase consumption and this may result in an increase in the interest rate.