Transmission mechanisms in HANK: An application to Chile

Benjamin Garcia, Mario Giarda, Carlos Lizama and Ignacio Rojas

Latin American Journal of Central Banking (previously Monetaria), 2024, vol. 5, issue 3

Abstract: Households in emerging economies are subject to significant income risk and have low access to financial markets. Leveraging multiple administrative microdata sources, this paper documents significant heterogeneity in asset holdings, income, and income cyclicality across the distribution of Chilean households, as well as considerable income risk. Considering this evidence, we compare the transmission mechanisms between Heterogeneous-Agent New-Keynesian models with search and matching (SAM) and sticky wage frictions (SW), and between one-liquid-asset (OA) and two-asset (TA) specifications. We propose a decomposition of consumption responses into direct, indirect, average, and cross-sectional effects. We show that the transmission mechanisms depend on the labor market setup: in SAM-OA the transmission operates through average and direct effects, while in SW-OA it is through cross-sectional effects. Assets also matter, the transmission in the SW-TA has stronger direct and average effects than SW-OA.

Keywords: Consumption; Business cycles; Heterogeneous agents; Search and matching; Fiscal and Monetary policy (search for similar items in EconPapers)
JEL-codes: D14 D31 E21 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Transmission Mechanisms in HANK: an Application to Chile (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:5:y:2024:i:3:s2666143824000073

DOI: 10.1016/j.latcb.2024.100125

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