Forward guidance and fiscal rules in HANK

Ansgar Rannenberg ()
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Ansgar Rannenberg: National Bank of Belgium, Research Department

No 478, Working Paper Research from National Bank of Belgium

Abstract: I show that in a canonical HANK model, under a balanced budget fiscal rule, the effect of a nominal interest rate peg is much larger than in a representative agent (RA) model. By contrast, under a standard fiscal rule where tax revenue responds gradually to deviations of the debt-to-GDP ratio from steady-state and depends on economic activity, the effect of forward guidance is much weaker than in the RA model, and becomes linear in the length of the peg. This result is robust to allowing for countercyclical inequality and income risk, and carries over to a quantitative model with capital.

Keywords: Forward guidance; fiscal rules; HANK (search for similar items in EconPapers)
JEL-codes: E37 E52 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2025-07
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202507-478

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