Abstract
How does a monetary union alter the impact of business cycle shocks at the household level? We develop a Heterogeneous Agent New Keynesian model of two countries (HANK) and show in closed form that a monetary union shifts the adjustment to a shock horizontally across countries, within the brackets of the union-wide wealth distribution, rather than vertically, that is, across the brackets of the union-wide wealth distribution. Calibrating the model to the euro area reveals that a monetary union alters the impact of shocks most strongly in the tails of the wealth distribution but leaves the middle class almost unaffected.
Citation
Bayer, Christian, Alexander Kriwoluzky, Gernot J. Müller, and Fabian Seyrich. 2024. “A HANK² Model of Monetary Unions.” Journal of Monetary Economics 147: 103579.
@article{BKMS24,
author = {Christian Bayer and Alexander Kriwoluzky and Gernot J. M{"u}ller and Fabian Seyrich},
year = {2024},
title = {A {HANK}$^2$ Model of Monetary Unions},
journal = {Journal of Monetary Economics},
volume = {147},
pages = {103579}}