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Fiscal Multiplier, Monetary Shock and Hand-to-Mouth Household

Fei Guo (), Isabel Kit-Ming Yan (), Tao Chen and Chuntien Hu
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Fei Guo: Xian Jiaotong University
Isabel Kit-Ming Yan: City University of Hong Kong
Tao Chen: University of Macau
Chuntien Hu: Xian Jiaotong University

No GRU_2021_025, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: The crux of policy analyses rests with its effectiveness in altering consumer behavior. However, the vast difference across individuals gives rise to a substantial variation in their response to policy shocks. One of representative heterogeneities is the level of liquid assets held by each family. Using the macro-level and household-level data from 20 European countries, this paper attempts to unravel how Hand-to-Mouth (HtM) households, who retain little or no liquid wealth, affects the transmission of fiscal or monetary measures. After separating poor HtM from wealthy HtM consumers, we discover that both are able to ameliorate spending (tax) multipliers. Additionally, we detect a similar role of HtM families in improving the efficacy of monetary policies.

Keywords: Fiscal Multiplier; Monetary Shock; Hand-to-Mouth; Household Heterogeneity (search for similar items in EconPapers)
JEL-codes: E21 E62 H20 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021-05-31
New Economics Papers: this item is included in nep-mac
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