“ Most of the literature studying heterogeneous-agent New Keynesian models takes household portfolios as exogenously given. What changes when agents are allowed to hedge aggregate risk? We develop a simple sequence-space method to solve for endogenous portfolios, impulse responses, and second-order risk premia in heterogeneous-agent models. Applying our method to a canonical HANK model, we show that the effects of monetary shocks and balanced-budget fiscal shocks are unchanged, but that unrestricted portfolio choice can greatly attenuate the response to deficit-financed fiscal shocks. The implied hedging portfolios, however, appear counterfactual, and imposing more realistic short-sale and leverage constraints restores standard outcomes.”