Fiscal policy and sectoral spillovers in open-economy HANK

Charles de Beauffort and Ansgar Rannenberg

No 3279, Working Paper Series from European Central Bank

Abstract: Government spending falls disproportionately on non-tradable services. We show empirically that government spending shocks stimulate private consumption along with sizable spillovers to the goods sector and a relative decline in goods prices. We rationalize these findings with a two-sector open-economy HANK model. Uninsurable income risk and precautionary savings lead to a persistent income-driven expansion in private consumption. In the tradable sector, import intensity and limited labor reallocation dampen wage pass-through to prices, matching observed co-movements. The resulting expenditure switching produces a positive tradable output response despite deteriorating net exports. Household heterogeneity and trade openness jointly shape sectoral fiscal multipliers. JEL Classification: E62, F41, E21, C11, C32

Keywords: consumption; fiscal policy; government spending; heterogeneous agents; open economy; sectoral spillovers; SVAR; trade (search for similar items in EconPapers)
Date: 2026-09
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