A HANK² Model of Monetary Unions
Gernot Müller and
Fabian Seyrich ()
CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany
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: HANK2; OCA theory; Two-country model; monetary union; spillovers; monetary policy; heterogeneity; inequality; households (search for similar items in EconPapers)
JEL-codes: D31 E52 F45 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mon and nep-opm
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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:bon:boncrc:crctr224_2023_449
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