Andreas Schaab, Toulouse School of Economics

"Monetary and Fiscal Policy According to HANK-IO"

Abstract

This paper studies monetary and fiscal policy transmission in a multi-sector heterogeneous-agent New Keynesian model with an input-output network (“HANK-IO”). We document systematic household-sector linkages in micro data and calibrate our model to match them. To identify when these linkages have implications for policy transmission, we analytically characterize an as-if benchmark that features a strict decoupling between household and sectoral heterogeneity. Away from this benchmark, novel earnings and expenditure heterogeneity channels emerge that govern the propagation of demand and supply shocks. We develop a new decomposition that allows us to isolate and compute the contributions of distinct dimensions of heterogeneity to overall policy transmission. The contribution of earnings and expenditure heterogeneity channels in the transmission to aggregates is small, confirming the quantitative relevance of our as-if benchmark. In the cross section, we characterize the distributional consequences of monetary and fiscal policy across households and sectors.

Contact person: John Vincent Kramer