A HANK2 Model of Monetary Unions

Christian Bayer, Alexander Kriwoluzky, Gernot Müller and Fabian Seyrich

No 2044, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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: 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)
Pages: 50 p.
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-mon and nep-opm
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https://www.diw.de/documents/publikationen/73/diw_01.c.875812.de/dp2044.pdf (application/pdf)

Related works:
Journal Article: A HANK2 model of monetary unions (2024)
Working Paper: A HANK² Model of Monetary Unions (2023)
Working Paper: A HANK2 model of monetary unions (2023)
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