A HANK2 model of monetary unions

Christian Bayer, Alexander Kriwoluzky, Gernot Müller and Fabian Seyrich

Journal of Monetary Economics, 2024, vol. 147, issue S

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 (HANK2) 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.

Keywords: OCA theory; Two-country model; Monetary union; Monetary policy; Household heterogeneity; Inequality (search for similar items in EconPapers)
JEL-codes: D31 E52 F45 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: A HANK² Model of Monetary Unions (2023)
Working Paper: A HANK2 model of monetary unions (2023)
Working Paper: A HANK2 Model of Monetary Unions (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000321

DOI: 10.1016/j.jmoneco.2024.103579

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