Rosanna Costa: Heterogeneity in macroeconomics - implications for monetary policy Opening remarks by Ms Rosanna Costa, Governor of the Central Bank of Chile, at the XXV Annual Conference of the Central Bank of Chile, Santiago, 21-22 November 2022. ***  1. Welcome Remarks Dear colleagues and friends, distinguished guests: welcome to the XXV Annual Conference of the Central Bank of Chile (CBC). We are very pleased to host you again face-to-face in Chile after three long years. Although it is unquestioned that the new forms of hybrid work have opened unforeseen opportunities, closeness and old fashion face-to-face discussion are essential inputs for the development of ideas and their practical implementations. Since 1997, the CBC has been convening prominent scholars and policymakers to this Conference to discuss major issues in central banking and their implications for emerging economies. Since its inception, this conference has been a bridge between academia and policymaking. This version is no exception: fresh and thoughtful research will support the discussion over the next two days on a topic that is very much front and center in the policy agenda. We will enjoy the presentations of 30 authors, 9 discussants, one keynote speaker, and a policy panel. 2. Introduction and context This year´s Conference is focused on the role of Heterogeneity in Macroeconomics and its Implications for Monetary Policy in general and Chile in particular. Understanding the heterogeneous-micro implications of a given macro aggregate shock can improve our knowledge of how the economy works and help us predict its future evolution.

For example, the work by Benjamín García, Mario Giarda, and Carlos Lizama that will be presented in this Conference combines location-based microdata on credit and debit card transactions with income surveys to show that fiscal policy programs that focused  2/5  BIS - Central bankers' speeches  on lower-income regions are associated with larger consumption responses, as predicted by models of heterogeneous agents with liquidity constraints. These theoretical and empirical advances in the literature were complemented by the improvement of computational capabilities. These gave rise to the recent development of the so-called Heterogeneous Agents New Keynesian Model or HANK model, which incorporated important features that improved the standard New-Keynesian-Model' fit to the data and introduced new transmission mechanisms of monetary policy. One of the main lessons from these models is that the direct effects of monetary policy on consumption, the so-called intertemporal substitution channel, can be very small compared to its indirect effects on income, which are shaped by general equilibrium forces that depend on the characteristics and behavior of households. Another important recent theoretical development is the model of heterogeneous firms and financial frictions, which alters the way we think about the transmission of monetary policy. While the empirical evidence suggests small effects of monetary policy on aggregate investment, the use of disaggregated data allowed us to observe that investment of firms with "good" financial conditions reacts strongly to monetary policy but not so the investment of financially constrained firms.