Fiscal policy and sectoral spillovers in open economy HANK

Charles de Beauffort (corresponding author) () and Ansgar Rannenberg ()
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Charles de Beauffort (corresponding author): National Bank of Belgium, Economics and Research Department.
Ansgar Rannenberg: European Central Bank. Fiscal Policies Division.

No 493, Working Paper Research from National Bank of Belgium

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.

Keywords: Fiscal policy; Heterogeneous agents; Open economy; Sectoral spillovers; Government spending; Consumption; Trade; SVAR (search for similar items in EconPapers)
JEL-codes: C11 C32 E21 E62 F41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202606-493

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